Hubbell's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Oct.17.13 | About: Hubbell Inc. (HUBB)

Hubbell Incorporated (ASDF.GH) Q3 2013 Earnings Conference Call October 17, 2013 10:00 AM ET

Executives

James M. Farrell – VP, Strategic Planning and Investor Relations

David G. Nord – President and CEO

William R. Sperry – SVP and CFO

Analysts

Christopher Glynn – Oppenheimer & Co. Inc.

Rich Kwas – Wells Fargo Securities

Drew Pearson – JPMorgan

Mike Woods – Macquarie Capital

Operator

Please stand by. We’re about to begin. Good day everyone and welcome to the Hubbell Incorporated Third Quarter 2013 Earnings Conference Call. Today’s conference is being recorded. For opening remarks and introductions, I will turn the conference over to Mr. Jim Farrell. Please go ahead, sir.

James M. Farrell

Good morning, everyone, and thank you for joining us. I’m joined today by our President and Chief Executive Office, Dave Nord and our Chief Financial Officer, Bill Sperry. Hubbell announced its third quarter results for 2013 this morning. The press release and earnings slide and materials have been posted to the investor section of our website at www.hubbell.com.

Please note that our comments this morning may include statements related to the expected future results of our company and are therefore 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 consider incorporated by reference into this call. In addition comments may also include non-GAAP financial measures. Those measures are reconciled for the comparable GAAP measures and are included in the press release and the earnings slide materials.

Now let me turn the call over to Dave.

David G. Nord

All right. Thanks, Jim good morning, everybody. Thanks for joining us. Let me just give some overview, commentary on our results and then I will turn it over to Bill for some details. You’re seeing our results and certainly we’re pleased with another quarter of strong performance, I think our results we feel very good, nice solid performance.

I have to say, I’m particularly proud of our ability, the organization’s ability to perform despite what continue to be very choppy market. You see sales are up 6%. But our end markets are certainly pretty mixed non-res so a little better, but still relying on the strength of the renovation market, not necessarily meaningful improvement in new construction. The resi market continues to be solid, even with some volatility in that market as you see in some of the reports as interest rates rise.

The utility side continues to be weak in both the transmission and distribution and it’s also impacted by at least in the quarter, virtually no storm activity and a very quiet year although I think we’ve seen, we did have a little benefit this month from snow storm up in South Dakota, but no meaningful activity there. And the industrial side is mixed particularly pleased with our high-volt business; it’s starting to come back and some improvement on our Harsh and Hazardous.

The more importantly we’ve got margin expansion of 100 basis points year-over-year this quarter, a lot of that driven by productivity and our continued focus on productivity and the benefit of lower material costs. And as we announced earlier this week, we increased our dividend payable in the fourth quarter by 11%.

On the platform level, commentaries, on our electrical systems, as I said, our high voltage business is up nicely, and you know that we’ve talked about that and expected improvement in the second half. Until you start to see the orders going out the door, you’re not really sure and we certainly have seen that, so we feel much better about that part of our market.

Acquisitions, particularly in the electrical systems operations continue to contribute to growth our margin there benefited certainly from the lower material cost, as well as some of our volume leverage. On the lighting side, the new constructions, certainly show pockets of activity, but still a choppy pattern, I think what we’ve seen most recently some of our larger project orders continue to be on the healthcare side which is good for now although I think we anticipate that maybe slowing in that particular market, the renovation still driving most of the activity on the non-res side.

The residential markets as I say continue to be strong and we are participating in that quite nicely. Our most recent acquisition on the lighting side Norlux added to our LED capability and its integrating very well. And on the LED side I think we’ve seen close to 30% penetration on our sales level as we exited the quarter. And I think we are also most recently recognized as you have seen by some of the industry and in terms of our product innovation and recognition.

On the power side, you know that continues to be a challenging environment for a lot of reasons, the regulatory uncertainty lower demand, but we’re navigating trough that certainly distribution as I said earlier this year that project business was slowing and we’ve seen even some of the project business that we anticipated being released in the third quarter being pushed out, but also some continued weakness on the distribution side.

As well, that’s become a much more price competitive environment than we’ve seen in the past, but on the positive side, because we’ve had lower transmission projects going out and as we’ve said that that tends to be more price competitive and lower margin we’ve got some of the mix benefit you see that in the margins on the power side.

Lastly on the acquisition front, the acquisition of Connector Manufacturing and Norlux are both performing extremely well, we will talk later but the pipeline is active and we hope we maybe able to close another one or two smaller deals before the end of the year.

So with that let me turn it over to Bill to take you through some of the details.

William Sperry

Thanks, Dave. Good morning, everybody. I’m happy to be using version B of our comments this morning rather than version A. The government wasn’t paying their bills and we’ve been talking about a different world maybe, but so as Dave said our sales up 6% with acquisitions contributing about 5% of that. We had FX headwind of a point so organic volume as Dave was referring to is pretty modest 2% contributed.

Of those acquisitions that were contributing to 5% of coming from five different investments that we made, Dave just made – he referred to Norlux and CMC, what I like about that is, is they are spread across both segments electrical and power and within electrical, spread across lighting which Dave mentioned Norlux, but also spread across industrial as well as Harsh and Hazardous.

So good evidence of how the acquisition program is complimenting the organic volume that’s out there. Lighting really lead the organic growth side of that, as Dave mentioned resi side of lighting is quite strong and the reno side really helping that grow, another stronger grower was High Voltage in the quarter. So the operating margin was up 100 basis points to 18.1%, EPS of a $1.62 up $12, free cash flow continuing in excess of net income which is to get to our annual goal of equal or better and I hope you all saw a couple of days ago raised the dividend to $2 a share an increase of 11%.

I’m going to be using the slides Jim referred to and I’ll go by the page number. So I’m on Page 4, looking at the end markets contributing to the 6% sales. In non-res really that new construction is really still soft thanks to the public markets being particularly soft and the institutional side of public in particular. Public is in better shape, but the net of those is quite flat still and its that reno and relight growth that’s helping us grow overall in non-res which is a really important driver.

On industrial side, you’ll see the extractive industries, our Harsh and Hazardous markets, were reasonably flat through the quarter, and to try to make sure we provide clarity, the high-volt test equipment, we are indicating the orders here i.e. the end-market orders for the quarter were quite flat. The sales from earlier orders were very, very strong. So this is really inside into 2014’s high-volt business and we’ll talk about our outlook; Dave will come back to that end.

Dave mentioned utility, still some softness at transmission and distribution, I’ll just add off of a pretty high level of spending still. And resi, despite all the mixed signals out there of mortgage originations and fears of interest rates our business still experiencing very strong residential spending.

So Page 5, we show the gross margin up 80% points to 34.8%, largest contributor was productivity. And I just want to kind of draw some highlight to that, productivity for us comes through a lot of small capital projects that are focused on productivity to us as a management its part of our paradigm of management company very, very important and I’ll comment on that when we get to cash flow, I’ll show you in the CapEx. And we had a lower material cost, particular on the steel and copper side. The good news here for gross margin [indiscernible] for industrial margin in the end markets.

On the S&A side, really look at it both dollar matter and as a percentage of sales the increasing dollars due to acquisition that Dave mentioned well as an overall spending matter we’ve benefited from the volume leverage and actually reduced percentage of sales.

Page 6, we show our operating profit $151.6 million, 18.1% representing 100 basis point improvement over the third quarter of 2012 and describes how productivity and the lower – material costs drove the gross margin leverage at the S&A.

In other expense on Page 7 and non-op here really have interest which is very flat always in FX it gives us the volatility, so we had some losses versus gains so you see a couple of million dollar difference there. The tax rate, very comparable to last year, we had R&D favorability versus some of the discrete adjustments in the quarter observed that favorability to have very flat tax rate.

On Page 8 showing net income up 11% really derived from all those drivers we just mentioned. You see we picked up an extra percentage of growth at the EPS line, up 12% to $1.62, that extra point really been driven by the fact that we had 240,000 fewer shares based on some repurchasing we did in the quarter.

And we’ll switch to the segment now Page 9 shows you the third quarter view of Electrical segment. You see 8% growth of 5% coming from acquisitions, 3% from volume, again that residential really was strong at 17% and the non-res increased on renovations we’ve talked about, industrial was quite mixed as we saw, high-volt being up big double digits, versus some of the steel oriented and mining oriented industrial businesses that we serve actually were down in the quarter. So mixed on the industrial side.

And at the OP level you see 15% increase to $145 million up 110 basis points. The lower material costs were helpful here and the drop during the higher volume and again will comment on the productivity that has all those projects to offset other inflation costs.

Page 10 is the Power segment now you see very flat sales environments, but our Trinetics acquisition added 2% such really showing some negative organic with weaker distribution and transmission, but the importance of those productivity projects you see now at the OP level where we earned $47.1 million of operating profit 19.8% of sales a very nice improvement 110 basis points over the prior year.

Page 11 we look at cash flow for the quarter, when you look at that working capital usage our inventory days were up just a little bit in area focus for us. The other line the fact that we did not have a pension funding this year versus we did last year based on the high funding level of our pension fund. And you see that increase in CapEx again very important to drive those productivity projects as well as new product development work, which Dave made mention to some of those new products in the lighting sector that have won some awards recently.

Page 12 we switch now from the Q3 look to the first nine months year-to-date look and you see here $2.4 billion in sales up 4% operating profit at $381 million 16% of sales up 20 basis points earnings per diluted share $4.09 up 8%.

Page 13 break out the electrical segment and you’ll see sales growth of 5% to $1.677 billion the acquisitions being 4% of that 5%. So the story for the year-to-date quite consistent with the third quarter where we’ve got resi being very strong, non-res being aided importantly by renovation and the mixed level of industrial markets.

Operating profit of $255 million was 15.2% of sales, 40 basis point improvement 8% increase. There was some favorable pricing and material cost tailwind there of there helping drive that and again importance of productivity that offset inflation from the wages and healthcare and other items.

On the power segment you’ll see on Page 14 for the year-to-date period very flat. Sales flat at $700 million, operating profit flat at $126 million and 18.1%. They had some favorable product mix which is essentially the lower mega transmission projects is favorable to mix. Those tend to be a little more price competitive and you see the high levels of productivity. They absorbed facility consolidation that we talked about [indiscernible].

Cash flow year-to-date on page 15, you can see that $186 million, continue to see the usage in working capital which is inventory driven and you continue to see the pension funding differential in that other line in CapEx, higher levels of CapEx [indiscernible] new product development into our productivity. The trade working capital on Page 16, third quarter was just below 20%, again the inventory days were a little bit higher, its an area of focus for us of making sure we’ve got very high levels of customer service and trading off trying to be as efficient as we can with our working capital.

Our capital structure on Page 17, you see the cash down a little bit based on some of the acquisition activity. Dave highlighted the two bonds that are out there and you see debt-to-cap of 25%. So very liquid capital structure, very poised to make the investments that Dave was describing in terms of acquisitions.

And Dave I’ll switch back to you for outlook.

David G. Nord

Okay, thanks Bill. So just looking out for the rest of this year, we certainly continue to be focused on meeting our financial goals, we’re looking at our sales growth for the year finishing at about 5%, that’s – you recall our last guidance was at 4% to 6% range, so that’s right at the mid-point. That’s not an insignificant level or year-over-year growth in the fourth quarter that would require high single digit growth.

Some of that obviously coming from the acquisitions that we’ve done. But you know a solid mid single digit market growth which before today could have been highly uncertain, now it just has the normal level of uncertainty that we would typically see in the fourth quarter with a little bit of keeping our eye on what happened, we all recall a year ago in the fourth quarter when things slowed down.

But our order patterns today, at least halfway through this month are consistent with our forecast, in some areas slightly better which we prefer to get ahead of it in October, because the end of the fourth quarter tends to be a slower period. So we feel pretty good about that. On the margin side, we think based on the performance in the third quarter that we’re more likely to finish at 40 basis points up for the year. So all-in-all a very good result and I think it would set us up nicely going into next year.

Now next year is a whole another story, I mean we – the things that Bill referred to as our option A, or option B on our disclosure. The solution that was designed yesterday from our perspective only takes away the near-term crises uncertainty but unfortunately it doesn’t solve the long-term and so that’s going to – we’ve got to monitor that closely.

I’ve spent a lot of time out in the market with customers and everyone is paying attention, no one seeing any real, from our perspective any real negative impact but of course, that could of all changed if we didn’t get to the solution. But as we look at the markets for next year, I think we’re still in our planning process, but for 2014 as we’re looking at the third quarter, the third-party data that we start in our planning process, we certainly see market growth in 2014.

I think construction markets in general are going to lead that growth, residential is still going to be in the double-digit growth area. And we are hoping that the non-res new construction improves. I think you see the industrial markets all should grow low single-digits. And I think certainly the high-voltage turnaround that we’ve seen will certainly add to that and the energy markets will be positive.

And the utility probably will be the most challenging, certainly in the short-term; electricity demand continues to be weak. You’ve got a lot of investment and generation changeovers, a lot of pressure little or no rate relief going on, so I think the near-term investment profile. We think the data support is going to be pretty modest growth. We all know that the infrastructure needs the investment long-term and it will ultimately be there, but we are still a little cautious and I think most people are still pretty cautious.

And so overall we think that the end market growth based on third party data as I say is going to be in the low single-digits 2% to 4%. What we do over the next couple months is obviously continue to monitor the markets see how we finished this year, but we also spent a lot of time with our endusers as well as our channel partners and getting their take on what they are planning because that – at the end of the day that’s what really is going to drive our business and we often found that certainly is a more reliable indicator than some of the third-party data – the third-party data and at least over the last few years has tended to be a little bit high in most markets.

But I think that the – what I’ve heard so far from our end markets is when I look at this year and next year certainly this year not as good as we had planned and not as good as we believe it could be and hopefully next year it will be as good as it could be and as good as we expect. So I think there is a positive view on the opportunities next year.

We are going to continue to focused on margin expansion for next year, I think it from our standpoint next year productivity will be even more critical on that side because the call we had some – some benefit this year from favorable price over costs particular in the lower material costs that we don’t expect to continue next years.

So we are going to be depending a lot on our productivity and that’s why you’re seeing during the course of this year we’ve continued to make investments in facility rationalization we’ve closed the Mexican facility at the end of the quarter we announced the closing of the smaller lighting facility. And we are going to continue to do that help support our efforts around productivity.

So, I think our performance year-to-date demonstrates our ability to deliver group performance. And I think it continues to support the premise that we’ve always used which is the markets are volatile they’re unpredictable and we can’t control them. What we focused on is the thing that we can control which is the effectiveness of our operations and driving for continues improvement.

So with that let me turn it over to back to Jim and we can open up for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We will pause just a moment. And we’ll take our first question today from Christopher Glynn with Oppenheimer.

Christopher Glynn – Oppenheimer & Co. Inc.

Thanks, good morning.

David G. Nord

Good morning Chris.

Christopher Glynn – Oppenheimer & Co. Inc.

Dave, you commented the volatile end markets clearly and the effectiveness of the programs you can control and obviously that’s showing up. Can you elaborate and maybe give a little detail on specifically some of the productivity programs that are washing through in here now?

David G. Nord

Well, I mean some of them are – the things that we’ve been doing for a number of years, I mean first and foremost is on our coordinate souring efforts, that was a big element of the business case, you recall for SAP and we still have a lot more opportunity in that area and it really comes around more coordinated, as I talked earlier in the year back at our Investor Day. We are focused around a more coordinated one-Hubbell strategy and so that’s really a key to what we continue to do and what continues to provide a benefit to us.

We were also looking at other functions within the organization where we can drive productivity and improvement whether that’s in finance or HR or some of the other support functions, as well as getting a more coordinate selling effort, when we’re out in the market, we obviously have a great reputation, great name and we’ve been built on with more than 60 very valuable brand, but a lot of the end-market is not familiar with the collective of that so we are spending a lot more time on those and we are seeing some of that benefit as well so.

William R. Sperry

I think Chris if you were to peel apart our capital projects, productivity projects you would see in an – typical year that 5 to 10 level of spending on two or three facilities that get consolidated and then just lots of little projects that its how lean philosophy gets implemented. Its at the cell level, ideas can come bottoms up from very small idea and you push productivity by doing lots of sit-ups and lots of push-ups everyday.

Christopher Glynn – Oppenheimer & Co. Inc.

Sounds good. And then on the – I got cutoff a little while so I may have missed something, but on a transmission anticipated for the 3Q, some got pushed out. Does that – I take it that stuff that was already awarded does that show up in the fourth quarter?

David G. Nord

Well we hope, we thought it would in the third, it’s just a question of when those projects get released. And so that’s a bit of volatility that we deal with. So some of that should be in the fourth quarter, but we thought it will be in the third, so.

Christopher Glynn – Oppenheimer & Co. Inc.

Okay. But it’s correct to think that it’s stuff that's already been awarded?

William R. Sperry

Yes.

David G. Nord

Yes, it is.

Christopher Glynn – Oppenheimer & Co. Inc.

Great, thank you.

Operator

We’ll take a next question from Rich Kwas with Wells Fargo Securities.

Rich Kwas – Wells Fargo Securities

Hi good morning everyone.

David G. Nord

Hey Rich.

Rich Kwas – Wells Fargo Securities

Just a couple quick questions, so on 2014 with the 2% to 4% market growth, Dave, could you give us some color on product introductions and just potential out growth versus that? I know you’ve gone through a product cycle with lighting and I think that’s ongoing. How are you thinking about the rest of the businesses in terms of your product introductions and the ability to outgrow that end-market target, or what you think the end-markets going to grow?

David G. Nord

That’s an interesting question Rich. Certainly we continue to invest in new products, on the lighting side, is a good example though where that – those new product introductions are not necessarily incremental to the market growth, they’re critical to participate in that market growth. However, we’ve seen examples where some of those product introductions have been able to capture some more market share than we would have had in the legacy products.

So there are those examples but I wouldn’t say that there is any particular areas that are going to drive at least at this point, outgrowth. But that’s still remains to be seen certainly our strategy is to outgrow the core markets through share gain and our preferred approach to that is to product innovation not through price. So we think we can win on the product innovation, but we may lose some on the price, so it could be net neutral at the end of the day unfortunately.

Rich Kwas – Wells Fargo Securities

Okay. All right. And then on industrial mix for next year, that was a bit of a headwind. And I know you had some headwind with utility not being as strong. It sounds like for next year you're thinking utility's going to be pretty flat. But on the industrial side, do you see some benefits from high-volt parts and parts in Hazardous and some of the higher-margin product lines picking up and being a little bit of a tailwind to mix next year on industrial?

William R. Sperry

Certainly those are positive contributors on the margin side, so we would expect those to be some tailwind, the flip side to that and of course at this point we are always trying to make sure that we are looking at things in a balanced way. The competitive environment in some of our markets if particularly on the utility side had become more prices competitive, so even flat to slightly up, had some potential margin pressure, that as the market leader, we are certainly not going to contribute to, but we’ve got to be able to react accordingly. So we are a little cautious on that but you are absolutely right, we are happy that a couple of markets that are better contributors on picking up, because we’ve navigated through a particularly like the high-voltage. So I think there is potential, we are certainly going to look for that if the pricing environment is supportive.

David G. Nord

I also think Rich, you are pointing out within industrial some of the strong areas, there is also a mix as non-res starts to outgrow the other segments which we anticipate over the medium to longer-term, we actually get some mixed headwinds from that. So as Dave said it tends to balance it out.

Rich Kwas – Wells Fargo Securities

Okay. All right. And then last question on lighting you gave the LED penetration. What are the numbers between residential nonresidential for the quarter in terms of growth?

William R. Sperry

Resi was up 17% very strong which – and the C&I side what was up mid-to-high single-digit. So really driven from the reno side. So Dave talked about the LED adoption rate – the year-to-date period where at about 25% as Dave said we ended the quarter at 30, so that growth trend really continues to be there, that adoption rate continues, it doesn’t look like its tapering at all.

Rich Kwas – Wells Fargo Securities

Okay, all right. I’ll pass it on, thanks so much.

Operator

We’ll go next to Drew Pearson with JPMorgan.

Drew Pearson – JPMorgan

Hey thanks and good morning.

David G. Nord

Good morning Drew.

Drew Pearson – JPMorgan

Good morning. I just want to drill back into price costs a little bit, on that both for the quarter and then kind of the year as you see it. What’s the magnitude of the price costs benefit, both for 3Q and then full-year guidance?

David G. Nord

Yes so the costs for 3Q were tailwind, they were helpful, price was is much more challenging. So and for the year we are anticipating if you add sometimes we use shorthand Drew of price costs to include four different variables and we talk about price two components of costs one being material the other being inflation like wages and healthcare and that against productivity.

If you look at all four of those variables for 2013 the full-year we’ve had very helpful tailwind from those and so that’s part of what’s been driving a good margin story for us and what as we look forward to 2014 and as we start to compare the incremental year-to-year and its hard to have that tailwind keep repeating itself and it tends to come back into balance and that’s one of the factors where that’s driving ton of our margin both this year and that.

Drew Pearson – JPMorgan

Okay. That's helpful. And magnitude is that like more than a point of benefit or is it below that?

William R. Sperry

We – its – we tend not to want to maybe pull it out that specific maybe, Drew.

Drew Pearson – JPMorgan

Yes. Understood. Switching gears just on the lighting side maybe the competitive environment, both with your kind of traditional competitors like Acuity and then maybe some other stuff that Korea is doing in the space. Maybe just an update on what you’ve been seeing over the last several quarters and your kind of outlook and observations there?

William R. Sperry

I think that the lighting space is growing very attractively for us, it’s as you say there are some newer competitors that some of them are targeted towards national accounts, some of them have targeted kind of narrows skew approach, some of them are bringing a price aggressiveness approach. I think from the way Hubbell will continues to approach the market; we’re trying to be a broad based lighting fixture competitor.

We like to have national presence and be able to offer full skew breadth whether it’s to a large box retailer on the resi side or whether it’s to a homebuilder on the resi side or whether it’s C&I projects of wide variety from airports to parking lots to office buildings. And so I think that the dynamics for the way we’re approaching the market continue to be consistent over that last couple of quarter period that you’re asking about, where innovation, LED adoption continues to be critical, we’re making a lot of investments in that area.

Dave kind of highlighted some of the awards for innovation that we are winning; I think it’s important to keep coming up with new product which we’re doing. On the C&I side, you have to be good at the reno side to be successful right now over the last few quarters. And we bought a company a couple of years ago that’s very focused on the reno channel through the Escos [ph] and lighting services companies, that helps us out.

And I think one other change is Dave mentioned a lot of time with customer. I think the distributors are getting very sophisticated as to how they are selling retrofit in reno. And so us continue to serve our distributors is positive in terms of continue to compete the same way. So as much as there’s a lot of change, I think the market dynamics for us are continuing and ways that allow Hubbell and our competitive positioning to thrive.

David G. Nord

Drew let me give you a quick summary of how we see it. In my travels, it’s clear that lighting is a great place to be, because of that’s clearly the market demand that’s out there. Everybody wants to be in lighting. Of course as a result, because everybody wants to be in lighting it’s become a much more competitive environment. But that’s one that we feel particularly good about our position, because at the end of the day you are still –you’re out selling product that you’re selling has a longer lifecycle, it helps to be someone who’s been in the business, long enough to be able to demonstrate that they’ve been around long enough, to support that longer product lifecycle, has a broad enough up product offering, to support a complete solution not the one-off products. So there’s a whole lot of stuff going on with new entrance with one-off products, and so that’s creating a lot of activity, but the god news is, the underlying demand is certainly positive, and we’re just going to navigate some of those competitive pressures.

Drew Pearson – JPMorgan

Okay. That’s great. Appreciate the color.

Operator

[Operator Instructions]. We’ll go next to Nigel Coe with Morgan Stanley.

Unidentified Analyst

Good morning it’s actually Mike sitting in for Nigel.

David G. Nord

Good morning.

Unidentified Analyst

I was wondering if you could give a little bit of color – I know you talked about a little in your prepared remarks on the M&A. Just what you're seeing in the space, what your backlog looks like and I think you mentioned a couple of deals here, list what areas are you focused on in terms of the M&A?

David G. Nord

I’ll let Bill cover that one since I ask him that question all the time.

William R. Sperry

Thanks Mike [ph]. Yes, so the pipeline continues to thrive, we continue to see lots of good opportunities for us that continue – the challenge continues to be to find the fit that works with our strategy our product suite, our distribution network and we are having a lot of luck finding things that seem fit right now.

It feels like the competitiveness on that pipeline is up a little bit I know that we’ve gotten a lot of questions over the last couple of quarters as to our price is too high, our valuations creeping away from us and I would say that we feel pretty excited about the values that we continue to see. But I do think that it feels a little bit like competitiveness is up in terms of others looking maybe at the same things we are.

But I think Dave really highlighted how we’ve got things which is, we got a balance sheet that’s poised to make investment and we’ve got an increased number of resources internally and we’ve made investments in the processes to be more effective both at finding and integrating our acquisitions. I think Dave made some reference to the fact that our last two are getting integrated very well. I am glad that that starts to become sort of a ho-hum [ph] message you know that’s kind of what’s expected and I think that’s going that way.

So we continue to be very optimistic about what’s out there in our ability to close and then integrate them well. You asked about if there’s specific areas and I think the thing that encourages me the most is that they are not specific areas, they are all areas we are seeing situations across our entire portfolio we get lots of calls and lots of questions from private equity firms on what we want to sell.

Probably get 10 calls a week from somebody wants to buy, somebody want to sell and I think its good affirmation that we don’t have anything for sale. We like the stuff that we have. We like our positioning in fact we’re trying to consolidate improve the positioning from those. So it’s a active process, it’s an active market and I would say we’re optimistic about our ability to keep kind of at this level.

So if you see us with a model of trying to maybe double the organic growth with acquired growth, that’s a model that the level of activity out there would support. And I think we put pressure on ourselves to and you know to keep doing more. And I think the hard part Dave – Dave made an interesting and saying that we are hoping to get another one or two closed by year-end and he commented those are typical Hubbell size deals. I think its very hard for us to comment for you always one with something of more significant size come along, the frequency of those is much lower and so I would say our pipeline is very typical Hubbell sizes which is that $25 million to $50 million company, that with run across that’s for sale.

Unidentified Analyst

That’s a great color, thanks.

Operator

We’ll take our next question from Jeff Sprague with Vertical Research.

Unidentified Analyst

Good morning guys it’s actually Ryan sitting in for Jeff.

David G. Nord

Good morning Ryan.

Unidentified Analyst

I wondered if you can just talk a little bit more about the underlying demand particularly in the utility business and particularly with a focus in distribution, I think we all understand what’s going on in the transmission side, but the distribution time it seems to be at odds with strong resi environment. Can you just talk a little bit more about what’s going on there?

David G. Nord

Yes sure, I mean that’s probably the only place that I would say its – the demand is arguably at odds with resi growth, but I think some of that and as we’ve said earlier is because there was build out of existing development, so there wasn’t a lot of new investment. We have seen some benefit in our business on some new developments, but nowhere near the level that would be consistent with the resi growth itself.

Certainly we think that would be an element of growth opportunity next year that would offset the otherwise conservative and cautious expectations on demand on distribution. As I said earlier, we know there needs to be spending there the problem is particularly with the IOUs, they are under some tremendous pressure on rates, on returns, on capital structure, on source of fuel. If you add the dynamic of substitution of renewable that there – what we hear from that part of the market is much more caution in the near term, until things start to settle out. So I hope that helps.

William R. Sperry

You know Ryan with distribution I think we may have – we tend to describe the majority of our distribution is maintenance and repair, not constructions. And we tended to count on that maintenance and repair to be a steady year-in and year-out kind of increase in spending. I think what we’ve witnessed is the shock of a late caused 2009 to be a low spending year and as Dave described some of the pressures I think this year is too. So what we’ve maybe described as steady has a little more volatility in it and that’s what we’re [indiscernible]. But I think your view is right that construction side of the – that comes from resi should be to help bolster some of the distribution spending going forward.

Ryan Edelman – Vertical Research Partners

Okay great. Thanks. And then may be a similar question on the non-res side, just trying to really get your feel for what you’re seeing in that market maybe in the near-term as we kind of start to look out to 2014?

William R. Sperry

Yes I think in non-res, again we split it out between public and private. And the public side continues to drag us down, the overstimulation back in 2009 and 2010 is creating – there was unsustainable creating a little bit of a hangover there. But on the private side Ryan, you know and particularly in the public some of the institutional side showing some of the more softness whether that’s education and some of those areas were strong before. But on the private side we are starting to see growth and that’s to me good news.

When you look at some of the leading indicators like ABI [ph], you start to look at square footage and contract, our put in place spend will lag the start of a new building. So we continue to wait for that spending to pick up. We get a lot of questions when Jim is on the road about what is non-res today or tomorrow or next week. I think we’re all sort of waiting for it and it continues to – it just continues to not look in that hockey stick is right upon us. If you look at some of the third-party forecast, I’m sure you look at some of this in work that we do. Over the last six months the outlook for next year’s non-res put in place spending on buildings has softened a little bit, that hockey stick was presumed to be I think in full-bore by next year. I think it’s just going to be a little more modest as we recover.

Ryan Edelman – Vertical Research Partners

Okay. Thank you very much.

Operator

[Operator Instructions]. We’ll go next to Mike Wood with Macquarie.

Mike Woods – Macquarie Capital

Hi thank you. In addition to the third-party trends you are just talking about non-res and some of the leading indicators, do you get any direct feedback there in that segment from your customers or distributors in terms of backlog or projects being differed, particularly around the government shutdown and any sense in terms of when that log jam might break?

William R. Sperry

Mike, I would say we certainly have no ability to predict what impact all that nonsense had on contracts and timing of when they might get restarted. We wouldn’t really have any insights into that. I’m sorry to say.

Mike Woods – Macquarie Capital

Got it. And then just on the lighting side, you had mentioned healthcare strength and the reno and some product innovation. I’m curious if you can give some color in terms of how narrow or broad that LED adoption is, whether it’s moved beyond like those early adaptors and if there’s an established trend in office or retail or other vertical?

William R. Sperry

Yes, it maybe hard for me to comment on verticals, but I would say the adoption is very broad across Hubbell’s lighting brands, which I take as a pretty good sign that’s its kind of seeping out there. I think that the right to point out that certain applications lend themselves. I think areas like, parking lots, airports, they seem to be adapting to LEDs at are very, very high level. A refrigerated application seems to be adapting to LED at a high level.

I’d say on the resi side it’s still slow, slow to come around, because the prices are still high and the paybacks are little slower given that you’re light are on at home for only a couple of hours a day. So I think it’s – I don’t know if it’s so much by vertical as it by application may be. And it’s starting to get – I would describe as pretty broad based.

Mike Woods – Macquarie Capital

Great, thank you.

Operator

Gentlemen with that there are no other questions in queue at this time.

William R. Sperry

Okay.

James M. Farrell

Okay thanks Debbie. This concludes today’s call. Certainly I’m available in case anyone has any follow-up questions. And once again thank you for joining us this morning.

Operator

Ladies and gentlemen thank you for your participation. This does conclude today’s conference. Have a great rest of your day.

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Hubbell (HUB.B): Q3 EPS of $1.62 beats by $0.02. Revenue of $835.9M  (PR)