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Executives

William R. Sperry - Vice President, Corporate Strategy and Development

Timothy H. Powers - Chairman, President and Chief Executive Officer

David G. Nord - Senior Vice President and Chief Financial Officer

Analysts

Jeffrey Sprague - Citigroup

Robert Cornell - Barclays Capital

Christopher Glynn - Oppenheimer & Co.

Scott Davis - Morgan Stanley

Steven Gambuzza - Longbow Capital

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Rand Gessing - Neuberger Berman, LLC

Hubbell Inc. (HUB.B) Q1 2009 Earnings Call April 23, 2009 10:00 AM ET

Operator

Good day, everyone. Welcome to the Hubbell 2009 First Quarter Earnings Conference Call. Today's call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to Mr. Bill Sperry. Please go ahead.

William R. Sperry

Good morning, everyone. Thanks for joining us. With me this morning are Tim Powers, our Chairman, President and Chief Executive Officer, Dave Nord, our Chief Financial Officer; and Jim Farrell, our Director of Investor Relations.

Hubbell announced its first quarter earnings this morning, and hopefully you have found our press release off of the wires or on our website. You will also find presentation materials on the website that Tim and Dave will refer to during the call today.

Let me refer everyone listening to the call to a paragraph in our press release and in the materials regarding forward-looking statements. The press release and materials may contain expectations based on assumptions and Hubbell's performance in the future, particularly regarding our earnings. We also may make some comments today on this call or answer questions which may include forward-looking statements.

All of these involve inherent assumptions with known and unknown risks, and other factors that can cause our actual or future results to differ, perhaps materially from what we may discuss or project to you today. So, please note that paragraph in our release. And I would like to consider it incorporated by reference into the call this morning.

In addition, we may make reference to non-GAAP financial measures. Those measures are reconciled to comparable GAAP measures in the Appendix to the presentation materials.

And with that, I would like to turn the call over to Tim.

Timothy H. Powers

Thanks Bill. Welcome everyone and thank you for joining us this morning. As is our usual practice with these calls, I'm going to provide you with a summary of the results we announced this morning. And then Dave will walk you through a more detail discussion of our financial performance.

I will conclude with my perspective on the outlook for the remainder of 2009, and some closing remarks. Then we will open it up and take some questions from you. We will refer this morning to the presentation materials you have hopefully found on our website.

I am starting on page three. Our first quarter results are reflective of the weak residential and non-residential construction markets that are being weighed down by the recessionary conditions that persist in our market, and the lack of availability of financing.

Our sales for the quarter were 585.6 million, a decline of 7% from the first quarter of 2008. Those sales were aided by acquisitions, price increases and storm-related shipments. Base unit volume would've been down approximately 12%, inline with the outlook we provided in our January call.

Residential construction continued to decline sharply, and non-residential construction is off significantly. Bright spots include our Power segment, Building Automation, our high voltage test equipment, and the retrofit relighting opportunities.

Obviously, we are facing a challenging economic environment. And we are working hard to align our organization to that available market. Our work force has been reduced since last fall, and we continue to evaluate additional alternatives. The employment actions we made in the first quarter resulted in approximately 3 million in charges, and with net savings of nearly 7 million in 2009.

When combined with the actions in the fourth quarter last year, the net savings impact will be nearly 23 million. But our story is not just cost cutting. Importantly, the net impact of price and productivity improvement, more than just covered cost increases. These factors are a key focus in our management in this environment.

In asset management, our inventories are down in dollars, and comparable in days to the first quarter of last year. And I am also pleased to highlight that our wiring, Hubbell Wiring Device division earned the Supplier of The Year award from Grainger, a great sign that the challenging environment is not changing our relentless focus on innovation, quality, reliability and customer service.

Let me turn it over to Dave now, and have him discuss the financials in more detail.

David G. Nord

Thanks Tim. Good morning, everyone. I am on page four on the company materials, if you want to follow along. I'll start first with our first quarter results. Net sales, as Tim mentioned, were 585.6 million in the first quarter, down 7%. Biggest item impacting that against the core volume was acquisitions, which actually contributed five points to the gross. So, excluding that, it was down 12%.

Foreign currency was a detriment of four points to the growth. And that was offset by the rollover impact of pricing actions that were taken last year, and some storm benefit in that utility business that offset the currency. But otherwise, we are dealing with a 12% organic decline in business, result of the broad-based market weakness. That resulted in gross profit of a 167 million, down about 11% from last year and a gross margin of 28.5%, down from last year's first quarter of 29.8.

And that's really a result principally, of the lower volume, and the impact of reducing our inventories. So, it really exacerbates the overhead absorption issue. On the positive side, the combination of price and more importantly, productivity improvements that we continue to focus on, offset cost increases.

Our commodities, and more importantly, some of the other costs within the business particularly, as we've talked in past pension headwind.

Turning to page five, we look at our SG&A costs in the quarter. They were a 109.7 million, down 2.2 million. That includes acquisitions of 6.1 million year-over-year. So, excluding acquisitions, actually down 7%, not as much as the level of sales volume. So, as a percent of sales up 80 basis points, to 18.7%.

But that increase is really attributable to two main components, probably equally split the costs associated with the work force reduction, actions that we took in the first quarter, as well as the year-over-year pension cost headwinds.

That led to operating profit of 57.3 million, and an operating margin of 9.8%, down 220 basis points from last year's first quarter, which we reported of 12%. And that's all again, due to the lower volume, inventory reductions and employment level cost actions.

Turning to page six. Some of the other items in the P&L, net interest expense was up 3.1 million from last year's first quarter. You'll recall that we issued $300 million of term debt midway through the second quarter. So, that higher interest rate -- higher interest expense is really reflective of that higher level of outstanding debt that was used for some of our strategic initiatives last year, both share repurchase and the acquisitions.

Our tax rate, year-over-year, up one full point to 31.5%, really due to a lower benefit that we see from some of our foreign operations, as well as Puerto Rico. So, all that leads to net income of 33.8 million, down 30% and earnings per diluted share of $0.60 versus last year's $0.85, down 29%, with relatively comparable outstanding shares. You'll note that we had no share repurchase in the first quarter of this year. So, we're maintaining our level of outstanding shares.

Let me turn now to some segment insights on page seven. First, on the Electrical segment. We reported net sales of 402.5 million, down 14%. The segment level currency hurt us by a comparable four points. And that was offset by the acquisition benefit from the acquisitions in the lighting business of last year, and a little bit of price. But otherwise, some broad-based market weakness.

We saw our residential business down 27% and our wiring and C&I lighting business is down double-digit.

One of the contributing factors to the year-over-year decline, and the impact in the first quarter was distributor inventory reductions as the channel was reducing our inventory. It's very difficulty to measure that precisely. Certainly, there is activity in that regard. And its activity that largely occurs in the first quarter, but probably not solely. We know from own experience how difficult it is to adjust to inventories in response to the market. And we expect that the channel will have some similar challenges. And so, it's likely roll in to the second quarter.

On the bright spot, we did have good market performance continuing in our high voltage test equipment, with that business up year-over-year in the first quarter.

Operating profit and margin, negatively impacted certainly, by the volume decline with margin compression due to the lower volume, and the employment action costs. We've got reduced inventory levels. You will note that we had inventory down from year-end by 15 million. All of that in the Electrical segment, as a result of the very weak market conditions there. So, the big impact is in the Electrical segment. But, the good new is we still have productivity improvements that help mitigate that costs.

Page eight, on the Power segment. We reported sales of 183.1 million, up 16%, very good performance in the quarter. Biggest contributor to that year-over-year improvement was acquisitions, which contributed 14 of the 16 points, the results of incremental volume from storms in the first quarter, and then some price realization. When you take all that into account, we think that the underlying core demand actually was down about 7%.

On the profitability side, operating profit of 29.6 million, up 17%, with a slight improvement in margin. We've got selling price increases covering our commodity costs. You'll recall that there's a lag in getting the recovery of those costs. And so, what you see in the first quarter is reflective of the final catch-up against the cost increases we saw last year. But, we do have productivity improvements. And the acquisitions, while they were significant contributors on the top-line, were not as nearly significant in the profitability side. So, from a margin standpoint they were slightly dilutive.

Turning to page nine. Cash flow; very good cash flow performance. We are pleased with our cash flow. Operating cash flow of 46.6 million in the first quarter, up nearly $14 million from last year's first quarter. And a good discipline around our capital expenditures one of the contributing items to the decrease from last year. Last year's 11.9 million included costs associated with the expansion of our, one of our facilities in Mexico, to make room for more of our product transfers that have helped us close some of our facilities.

So third, free cash flow of 38.6 million, a 114% of net income. A big -- some good performance as we'll talk in a few minutes on working capital.

You see on working capital, receivables. Receivables contributed 26 million of our operating cash flow in the quarter. Good collections, good -- you'll note the days outstanding, better than a year ago. We are very focused on receivable quality, receivable dating, making sure that we are keeping our days outstanding very tight in this tough credit market.

And inventory as well, good performance, moving our inventories down 15 million from year-end, and about 12 from a year ago. And keep in mind that year-over-year comparison has an acquisition impact. And if you just out the acquisition impact, we are down close to 10% from a year ago.

So, all that results in trade working capital just up as a percent of sales, up slightly from the last year at 21.9%.

Page 11, our capital structure continues to be very strong, very pleased with it. No significant changes from year-end other than the contribution of our cash flow in the first quarter, which brings our net debt-to-cap down a point to 18% from 19% at the end of the year.

So, we've maintained the flexibility in our capital structure, and also maintaining our conservative balance sheet.

So, with that, I'll turn it back to Tim, to talk a bit about the outlook.

Timothy H. Powers

Thanks Dave. Now, let's turn to page 12, and our outlook for the remainder of 2009.

Non-residential construction is our largest market. And the outlook for 2009 is for decline in the 20% plus range, as the recession hurts demand for new buildings, and the lack of financing holds down construction.

Residential construction continues to decline as the market struggles to absorb the existing inventories, while rising unemployment hurts demand.

Our industrial end markets are expected to decline in the low double-digit range, given the soft outlook for demand. Our Power segment should see double-digit declines in the distribution spending due to weaker residential construction activity, while overall transmission spending maybe flat to up low single-digits.

The maintenance and repair element of this business, while down year-over-year, will soften the impact of the construction declines. Unfortunately, we do not see a recovery in 2009, but rather these conditions persisting.

While the power and industrial markets can be expected to moderate, and the residential construction may turn positive in 2010, the non-residential construction outlook should remain in recession for several quarters.

Turning to page 13. I would like to highlight that although, challenging, this environment is manageable. We will take actions that are necessary. And there are positives. The stimulus package is certainly a driver that may deliver meaningful sales for Hubbell. But we do not see the impact in a quantifiable way in the short-term.

We are excited by the trends that will drive growth at our company, transmission spending, upgrading and expanding the grid, the need for energy infrastructure, energy efficient lighting technologies. But, in the near-term picture, will be dominated by volume declines, which will put pressure on margins.

Through this challenging downturn, Hubbell will continue to rely on its strengths. Serving a diverse range of essential end markets, with a suite of branded products used every day, that stand for quality and reliability.

Our focus on lean methodology that is continuously improving our cost competitiveness. Our conservative balance sheet and liquidity position, and our core competency in finding and integrating acquisitions with a compelling strategic fit at attractive valuations.

Our strengths will carry us through these times, and allow Hubbell to emerge more capable than ever before.

Thank you for your attention. Now, we will be happy to take some of your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question today comes from Jeff Sprague, Citi Investment Research.

Jeffrey Sprague - Citigroup

Thank you. Good morning, everyone. First, just on kind of what's going on with price and costs? You kind of blended some of those comments, and with discussions about productivity and other thing. Could you just give us a little crisper view of where price stood in the quarter in the two segments, and how it relates to underlying costs?

David Nord

Yeah, Jeff. I think as we've disclosed price in the quarter, overall was about two points, a little less in Electrical, a little more in Power. As you know Power has much higher commodity material component. And so, that's just the rollover from last year's. So, I put it at two points in Electrical, and four points in Power.

Jeffrey Sprague - Citigroup

Okay. And Tim, just on the non-res outlook, there has been this little bounce in the AB, actually more than a little bounce. But, a notable bounce in the ABI here just recently. Do you actually see any signs of tangible firming in some of the, kind of the early indicators that you look at in terms of just kind of bid and proposal activity?

Timothy Powers

Let's say our clarity is only a still a few months ahead this second quarter. And I would say that while there is optimism around the tangible part of that is hard to find. I think people are feeling like there is some solid ground developing. But, when you look at the hard facts of it, it's just not clear in the very short term.

Jeffrey Sprague - Citigroup

And as we look at the progression of your year here, particularly as it relates to Electrical margins. And I know you want to probably avoid specific margin guidance, but as you think about the restructuring benefits and other actions that you have coming through, would you expect to be able to sequentially build off, of what we saw here in the quarter, even if volumes stay kind of at these relatively depressed levels?

Timothy Powers

I would say in the second quarter, we have more actions planned to continue to drive our inventories down. We will have the same kind of absorption challenges as that continues. So, that's like our near-term picture on it. Beyond that, I am very reluctant to make any comments just because I am not convinced by -- I have a clear view of the second half of the year yet.

Jeffrey Sprague - Citigroup

And when you look at what's going on with price is there any kind of forward indication of how you think price will progress over the course of the year? Is it more push back on price? We are hearing a lot about project cancellations and delays resulting and re-bidding of projects. Can you kind of discuss maybe, how price was feeling at the beginning at the year, versus where you're at now in this March and April timeframe?

Timothy Powers

I would say certainly, the price pressure is intensifying. All of our customers can see the declining commodity costs. And they want prices to reflect that. We -- when you look year-over-year, first quarter, last year to first quarter this year, the fact is commodity costs were higher in 2009 and 2008, although in sequence from the fourth quarter to the first quarter, they were down a lot.

So, there is price pressure. There is considerable re-bidding. Part of that is that builders and developers have more time, because projects were on hold or being slowed down. So, while they have this additional time, they are taking the opportunity to continue to put pressure on all suppliers to get the lowest price. So, there is price pressure, yes.

Jeffrey Sprague - Citigroup

Thanks. I will pass it on.

Operator

And the next question will come from Bob Cornell, Barclays Capital.

Robert Cornell - Barclays Capital

Yeah, thanks. Could you just sort of take us through how your view of the non-res market has changed? I mean, in your guidance you took the expectation down. But, I think if we go back to the fall, I mean, you guys were still saying the pipeline looked okay type of thing, and orders and increase okay. I mean, how has that view evolved? Tim, can you just take us back a quarter or two, and then roll forward into what you see today?

Timothy Powers

I would say its -- it's the roll forward of the financial crisis. And also, the crisis as it affects retail sales. And so I think what's happening is the view to increase empty commercial space caused by the decline in some retail chains, the lack of available money is just kind of an expanding story, which is dampening demand.

Robert Cornell - Barclays Capital

Oh, and I am wondering is, when did you see the orders go negative, and when did your view go negative? Was it in last October or November, I mean...

Timothy Powers

No. October was just an excellent month for us.

Robert Cornell - Barclays Capital

Right.

Timothy Powers

It was one in which our orders and sales were extremely strong. And November was a month in which orders turned down significantly.

Robert Cornell - Barclays Capital

So, I mean, could you give us sort of an evolution in December, January, February, March? I mean, just sort of a way we can understand how the non-res has evolved for Hubbell. And then couch that at the context of the view forward?

Timothy Powers

I would say that each succeeding month on a day basis was more negative to the prior year comparison, and just reflecting what you've seen in the general economy. We can see that trend continuing in the short run. But, I don't know exactly what the second half looks like at this point.

We are giving you our best estimates of market conditions. But certainly, the visibility beyond the short time is still not particularly clear.

Robert Cornell - Barclays Capital

Well, in some case you guys have indications and increase before you actually get orders. I mean, people call it various things, the funnel of the pipeline, or various stuffs like that. I mean, on non-res projects. What's the view there in terms of second half of '08?

Timothy Powers

I can tell you the enquiries are still at a decent rate. But, amount of efforts to get one for close to an order is greater. So, there is longer time, more effort, more quotes, value engineering, to reduce the -- make to get to the budgets on these jobs.

So, it's just, as you would expect with more difficult economic conditions, there is more grinding and time on the front-end of every job, than there was a year ago at this time or even a couple of quarters ago.

Robert Cornell - Barclays Capital

So, you go back to Jeff's question on price. The -- you mean, some of the pricing you have is in steel type products, you've got sort of automatic price pass through. And so, how much of the price increase you have in first quarter was of the contractual pass through of variety?

And then I mean, based on what you are saying, it sounds to me like we should be expecting a negative price, and maybe negative price cost at some point during the year?

Timothy Powers

Well, I think certainly on metal-related products, if the raw material prices for costs stay where they are, the commodities that get sold on a basis of the price of steel or copper or aluminum, will have lower prices in the second half of the year than they had this year than last year. So, prices will go down.

I don't think you can conclude that margins necessarily will go down. So, we haven't come to see that particular story yet. But certainly, if you are talking about switch and outlet boxes, or things that are dominated by what the material that they are made from. If we are looking at steel at today's price, it would be substantially lower than steel in the second half of last year. So, the price would be low.

Robert Cornell - Barclays Capital

Final thoughts from me, if you go back a year or so, and you guys were talking headwinds from a variety of things, the SAP, product launches, plant closings, probably forgot a few things. But, where are you on some of all of the initiative drag versus headwind, and throw in the pension right at it?

Timothy Powers

Well, I think that certainly, there we've accomplished what we intended to do with our business system. And we're pleased with the progress we are making on that. And that we've closed the major facilities that we wanted to based in previous years. And we continue to work on that I think we have closed two or three smaller faculties in the first quarter, and continue to work to reduce our cost base.

So, there is no particular restructuring elements in the way. Certainly, it's the cost of trying to scale our resources down in the face of volume changes. So, I would expect that we would have costs equal to or slightly greater in the second quarter as a result of us trying to get our cost structure down that we had in our first quarter. But there is nothing in our way that's a big hindrance. Pension headwinds Dave, are what?

David Nord

Pension headwind is about 12 million.

Timothy Powers

For the year?

David Nord

Year-over-year.

Timothy Powers

So, I think we're actually, operationally, we're in pretty good shape. But, reducing your employment levels to the amount you need to first compensate for volume and then decline reduce your inventories.

These are big steps. And they -- and for us at least, they don't happen all in one move. So, we've been steadily working on that. And we have more work to do to keep that decline and inventory moving ahead of volume.

Robert Cornell - Barclays Capital

Okay. Thanks guys.

Timothy Powers

Sure.

Operator

Next is Christopher Glynn, Oppenheimer.

Christopher Glynn - Oppenheimer & Co.

Thanks. So, just looking at the Electrical segment, excluding Power, the core volumes really kind of outperforming every peer looked at so far in earnings, including the distributors, which given inventory de-stocking strikes me as a little anonym (ph). How you're doing that do your figure?

Timothy Powers

Chris, are you talking about Electrical or... ?

Christopher Glynn - Oppenheimer & Co.

Yeah. Your Electrical segment is really outperformed the comps from a core decline level. Just wondering if you had any thoughts on that?

Timothy Powers

Well, certainly I think we have a couple of very strong businesses that we pointed out. And perhaps, the proportion of those businesses like test equipment and lighting automation and things like that, would be a little bit higher portion of our total business than perhaps, they would be with others.

But anyway, I don't really have too much to say about others. But for us, that's a bright spot in our Electrical segment. And the volumes were not down in test equipment year-over-year.

Christopher Glynn - Oppenheimer & Co.

Okay. Can you just update the size of the test equipment business, and what your outlook is for that specifically?

Timothy Powers

It's a...

David Nord

Probably a 100 million.

Timothy Powers

It's a $100 million business that's operating at revenues equal to or slightly greater than last year. Our automation, Building Automation business is kind of a small business. But, it's in the 25 or $30 million range. And it's operating at a little bit better, significantly better than last year.

So I mean, it could just be the proportion of a handful of our businesses that are doing better. I wouldn't say that our mainline businesses should be doing anything substantially different than market conditions.

Christopher Glynn - Oppenheimer & Co.

Are you seeing the high voltage test trends as sustainable?

Timothy Powers

For the next few quarters anyway, yes.

Christopher Glynn - Oppenheimer & Co.

Okay. That's good. And then just lastly, any kind of anecdotes or point of sale data you have to try to piece out what any de-stocking impact might be and how long that goes on for?

Timothy Powers

Well, I think the economic conditions have distributors, attentions in full now. And we saw in a number of our businesses, product returns that would reflect their efforts to reduce inventory.

And as Dave said, not all distributors act in unison, so I don't think that this whole effort will be completed by the end of the first quarter. I think, it will continue on somewhat into the second quarter. But, I think it will be a diminishing impact. But I would say that to the extent a distributor has a 20% decline in their revenue, they're very much move to reduce their inventories by the same amount.

Christopher Glynn - Oppenheimer & Co.

Sure. Okay. Thanks for help.

Timothy Powers

Sure.

Operator

Our next question will come from Mr. Scott Davis with Morgan Stanley.

Scott Davis - Morgan Stanley

Hi guys. Good morning.

David Nord

Hi Scott.

Timothy Powers

Good morning.

Scott Davis - Morgan Stanley

One of businesses that at least, I think, and correct me if I'm wrong, has higher margins as you are harsh and as it is business that performed pretty well over the last couple of years. Has that business come off materially, or have you seen any type of mix shift or challenges there that stand out?

David Nord

We would classify that as one of our industrial business. And it's off little more than 10% as we indicated the whole industrial activity is.

Scott Davis - Morgan Stanley

It just doesn't seem like a very big number when you think about how fast that business grew in the up cycle. Is that you anticipate kind of further weakness down the road, or is that business more stable than maybe we would perceive it.

Timothy Powers

I don't have a strong or a separate forecast for that. I would say elements of it will remain strong all year. It has become a more project-related than flow goods kind of. So, it depends on what projects you win. And there still are some projects. So, it's hard to draw any separate conclusion about that business at this time.

Scott Davis - Morgan Stanley

Okay. And I know it's probably challenging trying to quantify this. But when you think about the whole opportunity in government retrofit, lighting retrofit, and maybe the part of the question is, have you tried to quantify it. And the part of the question is, is this how much of this proportionally is 2009 versus 2010, or even 2011 impact?

Timothy Powers

I'm fairly close to some of this. And I would tell you that the actions -- the preliminary steps that our government needs to take to act on any of the moneys that haven't been approved, are flat out minimum six months before the initial spending begins. And so, the majority of that even though, the President and Congress has said, you got to spend this as fast as you can. I would say, most of it will fall into next year and beyond.

Scott Davis - Morgan Stanley

And any feel to quantify it. I mean, do you guys think of it as a $50 million opportunity, or $100 million opportunity, anything even if its ballpark?

Timothy Powers

We haven't really gotten down to what we think it is for us, because we need to see the nature of some of those projects in more detail. We along with everyone is I think has looked at the list of possible projects. And we need to get a little more concrete yet about what are the specific projects going forward. And then we could have a more concrete point of view about how much it could help us and when. But, it's probably like at least another quarter before we could determine that.

Scott Davis - Morgan Stanley

Okay. It makes sense. And then lastly, your cash balance almost couple $100 million. But, you're out there actively looking at acquisitions. Are there interesting opportunities? How do you think about priorities with your cash, I guess, is the real question?

Timothy Powers

First of all, it's caution in this day and age. And with financial conditions being what they are. But second, there are opportunities and I think they are increasing right now. So, we find it an attractive climate at this moment. So, we'll just have to see how it develops. But, I think we're going to see an increasing amount of properties become available as this recession deepens and lengthens.

Scott Davis - Morgan Stanley

Okay, good. Thank you.

Timothy Powers

Sure.

Operator

Our next question will come from Steven Gambuzza with Longbow Capital.

Steven Gambuzza - Longbow Capital

Hi, good morning.

Timothy Powers

Good morning.

David Nord

Good morning.

Steven Gambuzza - Longbow Capital

The margin -- you mentioned the strengthen in the tests, high voltage test area, within the Electrical segment?

Timothy Powers

Yeah.

Steven Gambuzza - Longbow Capital

I was just wondering if you could comment on kind of what type of volume trends you experienced in that business year-over-year and then first quarter?

David Nord

Those were up low single-digits.

Steven Gambuzza - Longbow Capital

Low single-digits. And this used to be a separate segment that you used to report in prior 2008. Correct?

Timothy Powers

It was part of the Industrial segment. There were other properties in that.

Steven Gambuzza - Longbow Capital

Okay. So, it's not -- it doesn't refer to kind of all of that business. It's just a component of that.

Timothy Powers

Yeah. Part of what was in the industrial segment is now in our harsh and hazardous group and in our industrial group. And so, it represented a portion of our industrial segment.

Steven Gambuzza - Longbow Capital

Okay. And that's I guess, the margins that Industrial Technology segment used to report were fairly high in the kind of 20% operating margin range in 2007. Have you managed to maintain those favorable margins?

Timothy Powers

Well, it's a tale of two cities on that where the business has remained strong, our margins have remained high. But, a few of the industrial businesses service some of the basic materials industries in the United States, such as steel. And so, those businesses would be off by a significant amount and their margins would be down.

Steven Gambuzza - Longbow Capital

Okay.

Timothy Powers

So, a few of them are core suppliers to the steel industry, for instance. And so, you can imagine that they were off by a fairly large amount.

Steven Gambuzza - Longbow Capital

Okay. And then, on you mentioned in your outlook that you expect transmission products to be up mid single-digits this year in volume terms. Is that -- was that consistent with your January, or with your prior outlook? Or have things trended one way or the other on that front?

Timothy Powers

I think it's consistent. We expected our transmission business to grow. And there are some projects that will come to us, some substantial projects. The timing of those projects is the critical element here. And when those utilities will really start to work and order the parts and so on.

So, we are extremely optimistic about that and our participation in it. And even though you may have heard some utilities are reducing their capital spending, they are going ahead with a number of key projects, and Hubbell expects to do pretty well among those.

Steven Gambuzza - Longbow Capital

Okay. And do you sell those transmission-related products through distribution, or do you sell them direct to the utilities?

Timothy Powers

Primarily, they are sold through distribution. But, it's always the utility's choice. So, about two-thirds of utilities choose to use a distributor for this class of product, and one-third choose to buy direct.

Steven Gambuzza - Longbow Capital

Okay. And within I am guessing, these transmission products are housed within the Power segment and utility end market is general. I think, it's in your at least in your '07 10-K, it was about 78% of the Power segment sales?

Timothy Powers

Yes.

Steven Gambuzza - Longbow Capital

What would you say the mix within that of transmission versus distribution is roughly?

Timothy Powers

Okay. Well the markets per say are 20% transmission and 80% distribution. But, now you'll have to take the 20% up by mid-single digits or something like that. But, the distribution one down about 10%, and then you'll get kind of the mix.

Steven Gambuzza - Longbow Capital

Okay. So your mix in '08 reflected the market, which is kind of 80, 20?

Timothy Powers

Yes, it did.

Steven Gambuzza - Longbow Capital

And then it will -- transmission will grow and distribution will shrink as you trail (ph) at the markets.

Timothy Powers

Yes.

Steven Gambuzza - Longbow Capital

So basically, your product mix is no different than that of the end markets actually?

Timothy Powers

Not much, because we have a fairly substantial shares on each.

Steven Gambuzza - Longbow Capital

Okay. Thank you for your time.

Timothy Powers

You're welcome.

Operator

Jeff Beach with Stifel Nicolaus has a question.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Yes, good morning. Congratulations on a good quarter.

Timothy Powers

Thank you.

David Nord

Thank you.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

A couple of questions. In looking at the trends that you said were kind of deteriorating from November through maybe the current level. Can you make a comment about whether across your businesses a seasonable rebound occurring in the April, May, June period, versus what you've seen over the last couple of months?

Timothy Powers

There was always some seasonal rebound. Whether that's very muted, or whether it's plus 1, 2, 3%, or plus 10%, is really dependent on economic conditions. So, we are in our guidance predicting the former rather than the latter.

Obviously, just with the number, the weather and the number of work days outside, there is some little rebound. But, the negative to that is if there are fewer projects, over time it mutes this. And so, we're on the cautious in the bottom-end of our view of this right now.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Okay. And you said earlier that it is extremely difficult to quantify the impact of the inventory reductions that are occurring throughout the channel. But, can you, if you can't quantify, at least describe it? Is it the inventory reductions having a very significant impact on your sales in the quarter, and probably ahead here into the second quarter?

Timothy Powers

I would say, you have to kind of divide sales into this. The products that flow through shelf goods, and then products that ship directly to projects. But, the shelf good parts I would say, has been hampered 4, 5% maybe. This is my own personal view of it, rather than a highly quantitative assist more summary of antidotal information as we went through the quarter. Some of our distributors give us point of sale. So that -- but that's not the whole market, that's one customer.

So, they've been really seriously trying to ramp down their inventories since the middle of the fourth quarter. And now the ones that are really on ball have been working at it for four months. And it should, as you know, happen within that timeframe, because the distributor inventories are only about a month and a half. But, it doesn't come out evenly, and not everyone starts with the same time.

So, that's why we think that whatever the impact is for the first quarter, it will lessen in the second quarter. And everybody by then should be where they need to go providing there isn't another downward lag in industry -- in the markets out there.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

All right. And two more I think quick questions. One is, I think you have commented on acquisition in the Power segment. But, the acquisitions that you've made in the Electrical segment, they were generating very high margins. And I wondered if they were actually additive to your margins in the first quarter. Kurt Versen lighting opportunity...

Timothy Powers

Yeah, Kurt Versen is doing extremely well. And would have added to margin. And our newest acquisition Varon is still going through purchase accounting, and would be dilutive to the margins in the Electrical segment. So, we're ...

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

And that will continue?

Timothy Powers

For...

David Nord

That will continue for a couple of quarters.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Okay. And then last just, have you finally completed the closing of your lighting plan I think up in...

Timothy Powers

Yes. As a matter of fact that's true. Yes.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Okay. Thanks.

Timothy Powers

You're welcome.

Operator

(Operator Instructions). The next question comes from Min Chow (ph) with FBR Capital Markets.

Unidentified Analyst

Hi, good morning. Thanks for taking my question.

Timothy Powers

Okay.

Unidentified Analyst

This is a question about your Power business and clarification on couple of questions ago. But, you mentioned that your revenue outlook for 2009 was flat to up lower single-digit percentage. And taking into consideration your commentary about commodity prices and understanding the timing uncertainty. But, what is your expectation for volume growth in the transmission business? Are we talking 10 to 15%?

Timothy Powers

We think it's going to be a mid single-digit growth. We could make it better. It's the timing of projects. But, we can't be certain about what our utility partners' patterns will do on this. But, there are a number of opportunities. We think we will do well in those. But, whether we can have the shipments that are effective in 2009 and they will go on into 2010, is more dependent on how fast they can get into production in the field, construction in the filed. So, did I answer that for you or not?

Unidentified Analyst

Yes, you did. Thank you.

Timothy Powers

Sure.

Operator

(Operator Instructions). And next we hear from Rand Gessing with Neuberger Berman.

Rand Gessing - Neuberger Berman, LLC

Good morning.

Timothy Powers

Good morning.

David Nord

Good morning, Rand.

Rand Gessing - Neuberger Berman, LLC

You guys have been, had a long held interest in doing transactions. And they've been pretty patient I think in terms of doing a bigger one, since nice sized small deals. I just wanted to get your thought as given the given what you see out there, is there a pretty good likelihood that you're going do a bigger transaction here in the next couple of, next 18 months?

Timothy Powers

Well, Rand we wouldn't comment on the size of the opportunities we see. But, there's a variety of opportunities out there. And as you can imagine, they vary in size. And some of them are -- I think that's enough to say. I just think, there is a good opportunity. There is a variety of sizes. And it's always whether you can ever close them and find the seller that once who'll sell to you at the price you're willing to pay. But, right now that looks like a good opportunity for us.

Rand Gessing - Neuberger Berman, LLC

I just wanted to focus a little bit on the price you're willing to pay. Some companies are talking about difficulty, in terms of thinking about valuation. But, what's going on. What -- how are you guys sort of approaching that sort of sticky issue?

Timothy Powers

Well, I think the most challenging aspect of the discussions where the potential seller is, what earnings in 2009 are going to be from a factual point of view. And then you can really talk about, okay, how many multiples of that number are you willing to pay.

And so, it's the stock reality of seeing that your business that you have for sale is declining. And then, we will talk about what those price levels are. But, if sellers are wanting to look backward in time to 2008, it's unlikely that multiples can be paid at anything that resembles '08. So really, that's the crunch, what's the denominator of earnings.

Rand Gessing - Neuberger Berman, LLC

And I guess, my expectations would be that you are using the current environment to leverage your bargaining power to try to force concessions?

Timothy Powers

Well, I mean you're always trying to pay the fair price given market conditions. And that holds true. I mean, I don't think our view of value has changed one bit. Although, I think there was a period for a couple of quarters up to now when sellers went through this period of expecting that they can continue to sell their businesses looking backward on earnings. I think, we're coming through to the new period where they've had couple or three bad quarters, and now the reality of where we are is hopefully, showing up more in their price discussions. But, that remains to be seen.

Rand Gessing - Neuberger Berman, LLC

Okay. Thanks.

Timothy Powers

Sure.

Operator

At this time, there are no further questions in queue. I will turn the conference over to our hosts for any closing or additional remarks.

William Sperry

Thanks Mark. And thanks everyone for joining us. To the extent there are more questions we didn't have time for, please feel free to call me or Jim, and we'll follow-up. But, thanks very much for joining us.

Operator

And that does conclude our conference call. Thank you for joining us today.

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Source: Hubbell Q1 2009 Earnings Call Transcript
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