Hubbell's (HUBB) CEO David Nord on Q2 2016 Results - Earnings Call Transcript

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Hubbell Inc. (NYSE:HUBB)

Q2 2016 Earnings Conference Call

July 26, 2016 10:00 AM ET

Executives

Maria Lee - Treasurer and Vice President, Corporate Strategy and Investor Relations

David Nord - Chairman, President and Chief Executive Officer

William Sperry - Senior Vice President and Chief Financial Officer

Analysts

Nigel Coe - Morgan Stanley & Co. Inc.

Rich Kwas - Wells Fargo Securities, LLC

Christopher Glynn - Oppenheimer & Co.

Jeffrey Sprague - Vertical Research Partners

Steve Tusa - JPMorgan

Mike Wood - Macquarie Research

Joshua Pokrzywinski - Buckingham Research Group

Operator

Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2016 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would like to introduce Dave Nord, Chairman, President and CEO; Bill Sperry, Senior Vice President and CFO; and Maria Lee, Treasurer and Vice President of Investor Relations and Strategy.

I would like to turn – now turn the call over to Maria Lee. You may begin.

Maria Lee

Thanks, Julie. Good morning, everyone, and thank you for joining us. I’m joined today by our President and CEO, Dave Nord; and our CFO, Bill Sperry.

Hubbell announced its second quarter results for 2016 this morning. The press release and earnings slide materials have been posted to the Investors 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 our 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 it incorporated by reference into this call. In addition, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and the earnings slide materials.

Now, I’ll turn the call over to Dave.

David Nord

Okay. Thanks, Maria. Good morning, everybody. Welcome to the call. Thanks for joining us. I’ll just have a couple of few introductory remarks, and then – our typical pattern, Bill will take you through some of the details of our results. We’re happy to report another quarter of solid results, despite what’s certainly some mix markets that we continue to deal with. I think that’s a testament to our strategy and action.

See that we’re reporting sales of $909 million, which is up 4% similar to the first quarter driven by organic growth of 1%, offset by some foreign currency headwind, neutralizing that, and the rest have been driven by our acquisitions. Our acquisition agenda continues to contribute, both top and bottom line results.

On the margin side, a little more of a challenge than we would like. We certainly are fighting our way through some of the continued mix implication, particularly on our oil and gas business and our industrial business, but continuing to also focus on our cost actions and streamlining the operation.

We’re really focused as we said, we can’t control the markets, we can control what we do. And so we’re focused on execution of our investments as we’ve talked about in the past and our new products and growing our business and channels are integrating our acquisitions, particularly the ones earlier this year, our Lyall gas business and our EMC communications product business. And, of course, restructuring is an ongoing effort particular focus this year on our business processes, as well as our facilities.

In the quarter, I guess, the other thing that we did in the quarter, we completed our share repurchase program that we announced last year in connection with our reclassification. I think our repurchases in the quarter were about $45 million, bringing the total to $250 million since that announcement.

So the result of all of this was earnings per share of $1.53 adjusted for our restructuring related costs. Certainly, on the macroeconomic backdrop, it’s been challenging. I said back in May that it was choppy and sloppy, end-markets have been mixed for us. The good news is the non-residential and residential markets continue to grow. The oil and gas and core industrial are still down and the utility overall was flat.

A lot of that perspective that we were seeing and what I characterized as choppy and sloppy, I think was confirmed for me in a number of my conversations with key customers and channel partners throughout the month they were all seeing a bearing degrees of that in different parts of their business, and in the short-term trying to figure out whether there was a trend, what that meant. But I think the good news is, we’re working our way through that. We’ve navigated this quarter, and the challenges the uncertainty that it puts out and the difficulty in having very good visibility to the outlook. But we still feel pretty good and we’ll talk about that later.

And then some of the sloppiness I would characterize is around the inconsistency that I’m sure you’re dealing with in some of the economic indicators, and we’ve got manufacturing down in May and up in June. We’ve got the Fed trying to announce that they’re going to raise rates and then pulling back on that because of the indicators. So it’s been a challenge, but we’re certainly working through that.

In the face of all of that, we’re focused on what we can control, as I said, product innovation, lot of new products being introduced in our Construction and Energy business, a new clamp device box that eliminates short circuits and arc faults that can be caused by overtightening of metal clamps. Our Commercial and Industrial business just launched a Data Center eTour that gives customers, specifiers, distributors, visibility into the complete Hubbell offering when it comes to serving the data center market.

In the lighting business, most recently you may have seen some announcements. They were recognized with winning six product innovation awards, more than any other lighting manufacturer. The awards for Best Renovation Project, using solid-state lighting, an education brand, as well as four products specific awards for a number of the brands.

And our Power Systems business launched a Line Post Sensor product line that acts as both the line post insulator and a voltage at current monitoring sensor. The thing about this product and the product launch is that, it was a collaboration with two of the new businesses that we acquired over the last couple of years that brought capabilities to our Power Systems business to develop a product like that.

On the growth side, we’ve got power investing in building its international sales force in the target markets, as well as continuing to bolster its engineering capabilities. In the Lighting and Commercial and Industrial businesses are investing in growing their business in key verticals, adjacent markets, and geographies. And then the acquisitions, as I said, the Construction and Energy business integrating with the gas distribution acquisition and realizing nice benefits and nice growth there.

And on the power side, we’re doing the same with the acquisition of the communications product provider. And then most recently, just last week, the Power business made a small investment to support its China growth strategy by purchasing a polymer insulator company, provides access to the large Chinese utility market.

And in the cost actions, we’ve invested $6 million in the restructuring, bringing our total year-to-date to $13 million, focused on both structural costs, but also some staffing actions. And we’re seeing the year-to-date savings that are certainly in line with our full-year expectations of an incremental $0.30. So I think despite the choppy markets, we’re pleased with how things are moving internally. We’re going to navigate those choppy markets.

And let me turn it over to Bill, and he will give you a little more detail on the quarter. Bill?

William Sperry

Thanks very much, Dave, and appreciate you all joining us today. I’m going to use the slides that I hope you’ve all found to guide my comments here this morning. And I’m going to start on page three of the summary of our second quarter.

The sales of $909 million represented organic growth of 1% that was essentially offset by FX headwinds. And so, the net growth of 4% was really driven by our acquisitions, and a good testament to our business model helping us complement whatever organic growth is out there.

The operating margin level, you see the strong level of 15.2%, but comparing unfavorably to last year, you see the drivers here of mix in FX quite significantly, as well as the fact that, we had some cost increases beyond our productivity and those headwinds creating some drag on OP margin. The diluted EPS of $1.45 and with the $0.08 of restructuring and adjusted $1.53. And most of my comments today will be using those adjusted numbers net of the restructuring. So we can create better year-over-year comparable comparisons for you all to use.

On page four, we talk more about our end markets. And so you see the 4% sales growth there and the 1% driven by organic – a very good illustration of what Dave was describing as our mixed markets here. On the one hand, you have the contracting markets of industrial and oil. You have some flat markets like utility, and then we have some good growth markets in the residential and non-resi area. So quite a mixed bag across our portfolio netting to about 1% organic growth.

On page five, we show our operating income here of $138 million, the 15.2% OP margin, the downward drive because of gross margin of down 80 basis points. You see the mix and FX headwinds there being most significant, as well as some of the cost increases offset by productivity.

Essentially, we had material cost and price essentially offsetting. And so we had – while steel prices turned a little bit, we still had copper and some of our other large materials still being favorable for us in the quarter. And we still had the benefit, as Dave commented on the restructuring and related. At the S&A side, we’re up 20 basis points over last year, driven in part by some pension headwinds, but also investments, where we’ve been making in some of our key areas, which would notably be lighting in some of their channel development, power systems developing new products with new engineers, as well as investing in some international salespeople.

Page six, we turn to diluted earnings per share of $1.53, down slightly from last year, starting with lower OP and adding to that higher interest expense, because you all remember in the first quarter, we took out a new bond deal to help finance both the share repurchase and some acquisitions, the interest expense creating a drag.

The tax rate was effectively lower in the second quarter at about 30%, so about a point lower than prior year, which reflects the impact of the R&D package being included in this year’s second quarter. And then we also had the favorable impact of our share purchases to get us to that $1.53.

So switch now on page seven, to talking about our segment performance. And we will start with our Electrical segment generated sales of $641 million, 4% increase similar to the company, low organic being offset by FX, and so essentially the growth being determined by acquisitions.

In Electrical, both – there are two acquisitions contributing to that, both in the gas distribution area. So most recently, Lyall that David mentioned and as well we had our gas breaker contributing that we had closed on last year, but contributing incrementally to this quarter.

So, again, good illustration of our business model, helping us drive profitable growth here. The margins at 12.9%, down versus last year’s 14.3%, based on the mix and FX headwinds that we have been talking about.

Power, for the second quarter generated $267 million of net sales, up 3%, again, a similar story of low 1% organic growth, offset by the FX. So that 3% growth essentially being driven by acquisitions. On the OP line, you see the 20.9% OP margin slightly lower incrementals than we’re used to seeing from Power, while price cost productivity is in balance.

But here you’re seeing the conscious investments we’re making in there – engineering area and international sales, as well as the fact that all that growth coming from acquisitions, which as David mentioned, the EMC acquisition in the telecom utility product area, and in our second quarter of ownership, those margins are lower than they will be next year, so you see a drag from that. But they’ve held on to that price, cost, productivity balance impressively through the second quarter here.

So page nine, we’re going to switch to the year-to-date half-time results here. And you’ll see the sales of $1.7 billion, an increase of 4%, again, same story of organic being 2% and acquisitions being 3%, FX subtracting a point. You’ll see adjusted OP margin of 14.2%, down 80 basis points continuing to fight that that mix headwind and FX that we’ve been discussing and generating essentially flat earnings per share at $2.69.

The Electrical segment at the halfway point, also very similar trends to the second quarter. And what we’ve seen is that that low organic acquisitions providing most of the growth from the market side, you’re seeing the weakness coming from the oil and core industrial areas and strength in non-res and resi demand.

It may be worth a comment here on our progress of Harsh and Hazardous throughout the year. So that first quarter, we were down about 25%. Second quarter, Harsh and Hazardous was down mid-teens. So we’re anticipating for the second-half Harsh to be down in single-digit area to get us to that 15% to 20% range for the year. And as we look at, those are all compares to prior year obviously. When we look at Harsh and Hazardous sequentially, it’s really starting to flatten out now, which is quite a good sign. So we’re expecting as we end the year that that mix comparison will be lapped.

Also worth some comments on lighting as a significant element of Electrical segment. So we’ve had for the year-to-date period, our lighting growth has been in the high single-digits. We believe that’s consistent and in line with market growth. I don’t think that our lighting business is at steady state yet. As we’ve shared with you, they are doing some significant restructuring in working on facilities, rationalization, in order to make that cost structure more competitive.

They’re facing some interesting challenges on the pricing side of the market, and that puts pressure on us to continue to restructure and make sure our costs are as competitive as they need to be. And so we continue to have a positive outlook for lighting. We think there’s growth ahead of us with attractive margin expansion. So – and just commenting on performance of the Electrical segment as a whole, you see a 11.8% adjusted operating profit margin, same story of mix and FX headwinds affecting them.

The Power segment on page 11, $520 million of sales, up 4%, 3% of that coming from acquisitions. I see that the telecom providing some growth for them, whereas distribution is flat. We’re thinking that the hotter degree days being experienced through the summer here will help our utility customers on their operations side get the meters spending, hopefully flow some more distribution spending our way in the second-half. At the operating income line, you see 19.8% OP margins getting favorable price cost equation and able to pay for some of those investments that we described.

On the cash flow on page 12, you see we’re starting with a comparable amount of net income, comparable investment in working capital. The real change in generating higher cash flow this year was pension contribution that we made last year, we didn’t need to make this year, and you see CapEx just a little bit lower. So seasonally, our cash flow comes in much stronger in the second-half. So we feel cash flow performance here is on track to meet our targets on cash flow generation.

Capital structure on page 13, yes, you’ll see that $339 million of cash, most of that is international cash, small amount of commercial paper outstanding. And you will see the new bond issue there that $400 million due 2026. We’ve got a 3.35% coupon those, that financing obviously to support our acquisition activity in the first-half of the year, as well as our share repurchases. And we think leaves our balance sheet in a still strong position to support our growth, as we move forward.

So with that, I’m going to turn it back to Dave, so he can share his comments on outlook and where we’re going from here.

David Nord

Thanks, Bill. So as you saw in our release, not much has changed in our full-year outlook. Certainly, that’s not reflective of all of the dynamics that are at work underneath that with some of the changing markets and the level of activity. But our strategy is to manage our portfolio and the balance portfolio with its ups and downs and some of that volatility continue to deliver on results that we have committed to.

So we’re reaffirming our expectations for the full-year, despite that market uncertainty. We’re still expecting as we have all year and as we’ve done so far this year to outperform the end markets, at least, as we see the end markets, and certainly we see them being flat overall for our business for the rest of the year. But we still see within that flat non-res and res growing, offset by the declining oil and core industrial markets.

As Bill mentioned, the compares get easier, but even the oil and gas still has some negative implication through the second-half, but it’s starting to moderate much more significantly.

As far as acquisitions, the ones that we’ve completed so far this year should contribute about 3% to our sales growth for the year. And I think that there is certainly more deals in the pipeline whether they get close this year is always subject to many of the variables that go into, particularly in some of the dynamics of the type businesses that we look at, particularly, the entrepreneurial businesses and the personal interest that the seller often has.

But we’re still working on a number of fronts there. We have not taken our foot off the gas there. So we think all of that specifically is going to deliver earnings per share in the range of $5.20 to $5.40 per share, and that includes still estimate of $0.35 of restructuring related costs, as well as the $0.30 of incremental savings that I mentioned. We’re on track for both of those. And as Bill just mentioned on cash flow, we expect while our cash flow was seasonally higher in the second-half, we’re still expecting cash flow to be in excess of 90% of net income with our focus on working capital.

So with that, I’ll just end with we’re – I’m very excited about how the team, the organization has been evolving. The progress we’re making on our many initiatives that – and we’re taking on a lot as an organization, all with a view toward delivering long-term shareholder value. It’s not always pretty in the short run. It’s certainly not easy in the short run. But that’s what we’re working on new products, streamlining costs, requiring great companies. We push ourselves to better position ourselves everyday to be better everyday going forward.

So with that, let me open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Nigel Coe. Your line is open.

Nigel Coe

Thanks. Good morning.

David Nord

Good morning, Nigel.

Nigel Coe

Hi, choppy and sloppy, I think that puts it very well. Maybe David, just comment on your price, cost, I think you referred to it sort of tangentially. But maybe just put final points on where we’re seeing – directionally, how is pricing trending, and how do you expect that to develop in the second-half of the year? And then obviously, steel inflation is picking up, seemingly you haven’t yet seen that. But so just, how do you expect price, cost to trend through the back-half of the year?

David Nord

Well, I think the first-half was probably a little better than we expected, certainly in most of our businesses other than Lighting. I think Lighting has been the most challenging. But we’ve been fortunate, I think, Gerben Bakker, when he was – at our Investor Day was talking about how the challenges he was anticipating to face this year on the pricing side.

And he reminds me of that everyday, because he keeps telling me that day is coming, because he has been thankful that he has been able to hold price. Some of that is because with commodities holding up a little bit and certainly with steel starting to come back up. But that’s likely to turn slightly negative in the second-half. But I think that’s probably – that combined with the continued challenges in the lighting pricing environment, I think suggests to us that the second-half, price cost is going to be a little more challenging.

I think we’re still working to try and keep to our – I think, we had a half-a-point guidance expected around pricing. And with the better than expected first-half of the year, I think, even if the second-half turns more negative, I think, that’s kind of how we’re looking at the year balancing out. So…

William Sperry

I also think, Nigel, we’ve seen places narrowly, whereas certain electrical products that have a lot of steel content, and we’ve made price increases in the face of that and seem to be supported by the market. So I think the transparency on the steel pricing helps where tactically you’re trying to get price in the isolated areas that you can.

Nigel Coe

Okay. That’s encouraging. And just digging into Harsh and Hazardous, the headwind on margin has been primarily mix as opposed to -- and volume as opposed to price, I think I’m right in saying that. And can you just mark-to-market on, given the oil and gas declines you’ve seen in that business, what is the mix right now between oil and gas and other, industrial, et cetera? And of the oil and gas portion, would you again remind us what proportion is sensitive to North American land activity?

David Nord

Yes. So our Harsh business is primarily oil-based, Nigel, right. So we have taken steps to try to diversify some of that explosion proof product into industrial applications. And I think, we’ve mentioned to you all before areas like distilling, and food processing, and chemical manufacturing in places, where sparks and electrical arcs would cause big problems. And so that explosion proof device has value. But those are still young kind of efforts, and I would still describe it as predominantly a business that’s predominantly oil driven.

I think then as we cut our oil exposure, we’d say, we’re half domestic and half international. We’re skewed strongly upstream versus downstream and we’re skewed strongly project versus MRO. So that domestic project business is where that exposure has been hurting us. But as I say, I think, the combination of some of that diversification, as well as maybe some, at least, for this recent period some stabilization in the oil prices has allowed us to see a sequential flattening of that business, which is even though showing still some negative compares year-over-year, quite encouraging for us, and trying to end the year with basically be in that – on a new base, which we can grow off of.

Nigel Coe

Another question. But is the mix still as high as, I think, it was close to 80% before we went into this decline, is it still up there?

William Sperry

Yes, I would say it is.

Nigel Coe

Okay, great. That’s very helpful. Thank you very much.

Operator

Your next question comes from the line of Rich Kwas from Wells Fargo Securities. Your line is open.

Rich Kwas

Hi, good morning.

David Nord

Good morning, Rich.

Rich Kwas

So on lighting in terms of the pricing, it’s typically been competitive all along. But what’s changed here in the last 90 days in your view? And are you seeing competition picking up, or there is also some indications that the select markets – your group has been a little more competitive as well. So I just wanted to get some additional color there?

David Nord

Yes, I think the market has been more competitive. I think we certainly aren’t trying to – we’re not trying to drive the market down. I mean, I think you usually have to follow the leader.

I think there are some dynamics that you may hear in the channel, where we’ve had – we’ve made price adjustments to historical price levels on certain products that were way out of line with the market, and that was what drove some of the more aggressive cost actions in some of our plants, because we were clearly not anywhere near a competitive price level, yes, despite the quality of the product. And so we really had to take some aggressive cost actions to allow us to get our pricing to be more in line with the market and that was coming from the market. And we saw that, it was certainly an obvious contributor to where some of our businesses were underperforming the market.

So we had to adjust our prices accordingly, because we did a lot of benchmarking and a lot of analysis and demonstrated that was, in fact, true, it wasn’t just a customer looking for a lower price. So that was – there were certainly pockets of that that you might hear about. But I think, in general, I think it’s just a – we’re trying to make sure that we can be responsive to what the market seems to be doing or I’d say, in our position in some of the cases we have to be more of a follower than a leader, for sure.

Rich Kwas

And I may have missed this, Bill, did you give the split between commercial, industrial and residential growth for Lighting in the quarter?

William Sperry

Yes. So, Rich, for the quarter, we had – the resi business was down in the low single-digit range, which was a drop off from a strong performance in the first quarter. There’s some lumpiness on the resi side around some national account business. And our expectation is that to returns, I think, the second quarter was a little bit of anomaly on the resi side. And on the C&I side for the quarter, we’re in the mid single-digit range for the whole business. And so, again, a little bit down from the first quarter on – for lighting in the second quarter.

Rich Kwas

Is the same dynamics there in terms of national accounts, or is there anything more specific on C&I?

William Sperry

No, I don’t think it’s – no, I don’t think that one is driven that way. I think that’s just the flow.

Rich Kwas

Okay. And then just last one for me in terms of the outlook for the balance of the year. So, resi and non-resi maintained a 3% to 5% growth. The put in place numbers for non-res, at least, through May indicated something north of that. So is that something you are seeing here in the back-half of the year around non-res, or is it just baking in some conservatism on, given the volatility in the marketplace around projects and what not?

David Nord

Yes, it’s – Rich, it’s really more of the latter. I mean, we see some of those same outlooks, but some of those same outlooks are the ones that are the basis for my reference to being sloppy, because they really moved around a lot. And I think the trend line seems to have been just slightly weaker than as it starts out, still positive, still good business. But we’re just cautious around betting on that optimism, if it happens, we’d love it. We’ll be ready to participate. But I have lived enough through enough of this that we’re not going to – we’re going to be on the lower side in our outlook. All right.

Rich Kwas

All right. Thank you.

Operator

Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line is open.

Christopher Glynn

Thanks. Good morning.

David Nord

Good morning, Chris.

Christopher Glynn

Hey, Dave. So the lighting was a little light of the target for the year at about 10%. Is that still in your sights, or probably going to drive a little under that?

William Sperry

I think we’re halfway in high single-digits, Chris. And so to get to that target, we have to have a strong second-half, which is what the team is focused on accomplishing. So I think the target is still in sights, yes.

Christopher Glynn

Okay. That’s great. And on power systems, the organic decelerated a little bit. The comp was actually slightly easier. Any thoughts there, or is that just ebb and flow that you can’t really put a finger on?

William Sperry

No, I think, we saw some delay on the transmission project side, and the transmission side is always prone to those project delays. The distribution side, which is the largest – larger part of our business, which is MRO driven and it really coming out of the operating budgets rather than the capital budgets of our utility customers, and so again I just think it’s probably a sign of them being under some pressure a little bit. And as I’m saying we’re hoping that some of the hotter weather maybe gets their revenues going and allows them to spend and maintain and upgrade their networks, which would be hopefully good D-type flow business for us.

David Nord

I think there’s also one of the other dynamics, Chris and it comes into play in some of the areas that we’re expecting to see more growth is actually some of the constraints around availability of contractors, which is certainly impacting the housing market and the build capability there.

But I think it all – also we see it in some areas manifesting itself within the utility and particularly the communications sector. So that’s – we can work through that. There’s certainly demand for the product and a need for the capability, but it’s the ability to actually install it becomes one of the constraints, so.

Christopher Glynn

Yes, it makes sense. Just a little bookkeeping, wondering if the FX headwind is still around $0.15 and the pension is still about a $0.10 headwind, and the other one – other expense was pretty costly in the quarter, would that revert to more of a neutral?

William Sperry

Yes, so let’s take those in the pieces. So starting with FX, we had about a nickel of impact in the quarter and we expect that your $0.15 number is right for the year. Pension is in that $0.08-ish, so – $0.08-ish, $0.10-ish range, so that’s right. And what you saw in non-op was driven by first of all the interest expense from our new bond. And secondly, we had some acquisition accounting from a deal we did a few years ago, where we had an offset in the tax lines, so no effect on EPS, but some geography between non-op and lower tax.

Christopher Glynn

Cool, thank you.

Operator

Your next question comes from the line of Jeffrey Sprague from Vertical Research Partners. Your line is open.

Jeffrey Sprague

Thank you. Good morning everyone.

David Nord

Good morning, Jeff.

Jeffrey Sprague

Hey, can we get a little bit of color on how the restructuring benefits play out in the second-half, are those Q4 loaded?

David Nord

The benefits are not Jeff, we expect those – we’re sort of kind of running at that $0.30 and that’s kind of been smooth quarterly and we expect that to continue that way.

Jeffrey Sprague

And then just thinking about Lighting, I mean what I’m hearing, right is which you openly admitted, your cost structure was out of line, causing you to lose some share, you can just – you’ve addressed that. Plus it kind of begs the question of thinking about the restructuring savings kind of in the abstract versus the absolute, right?

I mean what you’re – what we need to do, just a kind of stay competitive versus what we can drop through the bottom line? I mean, is there any leakage on the actual realization of – and maybe it’s not just a Lighting question, maybe it’s a broader question in that, but the Lighting really jumps to mind?

David Nord

Yes, I think the – I think Lighting doesn’t form your question very well, because Lighting has been a big focus of ours on the restructuring. And I think what we’re expecting between the $0.45 last year, the $0.35 this year, those $0.80 between the $0.10 we got last year and the $0.30 this.

We’re expecting to have $0.40 delivered to the bottom line of that $0.80 kind of suggesting to your paybacks, which is Jeff, a mix of some headcount stuff, which is faster and some facility stuff, which is slower. But that’s – we’re netting out leakage that we’re trying to capture the actual savings there of our efforts.

Jeffrey Sprague

Okay. And then thinking about Lighting, I don’t know if you can cut C&I a little bit more, but if you just kind of thought about the c-piece, right and removed kind of the industrial headwinds that I think clearly are frustrating that business still – can you quantify how the commercial piece of the business is performing?

William Sperry

Yes, I don’t think we would cut it that finely, Jeff.

Jeffrey Sprague

Okay. And then just thinking about back to price, we kind of – you spoke to price, cost. But price specifically, can you give us a little more color on what actually happened in the quarter in the two segments?

William Sperry

Yes, I mean we had the kind of price challenge in that range that we had talked about of that that sort of half point of price. You saw – it’s just not evenly applied across the portfolio. So Lighting was the most intensive. There were places at the other end of the spectrum that had motivations and support to raise prices.

Examples of that, Jeff, would be places where FX headwinds were causing the need to ask for more price and others where the commodity particularly something that’s a very steel intensive and steel specific products. They also had the opportunity to ask for price. So it’s not as smooth kind of half point across the Board. It’s kind of spotty like that.

Jeffrey Sprague

Yes, okay. And then just one last one, if I could, Bill? On the leverage now, given where you’re at, I don’t know if you want to express it relative to debt-to-capital like we see it in the chart, you’re taking to debt-to-EBITDA, but kind of where is your comfort range when we think about toggling back and forth on M&A versus share repurchase, and just kind of a steady kind of run rate leverage ratio?

William Sperry

Yes, I mean I think that we would consider our balance sheet – just I would still characterize it as conservative. It obviously has a higher debt-to-cap and higher debt-to-EBITDA than it did. But I would say, Jeff, for the right acquisition, we would certainly be very prepared to utilize that asset of ours in the name of a strategic pursuit if it were compelling.

Jeffrey Sprague

Not continues to be much, but I mean when we just think about – how you think about it that you’d lever a 2.5% to 3% with the idea of coming back down subsequently or can you give us some framework to think about that?

William Sperry

I don’t think I would give you framework. But certainly the scenario you described is certainly within the range of our opportunities that that amount of leverage and then tapping the brakes for a few years to pay it off is certainly a very viable option that would be available to us in our opinion.

Jeffrey Sprague

Great. All right, thanks, guys.

Operator

Your next question comes from the line of Steve Tusa from JPMorgan. Your line is open.

Steve Tusa

Hey, guys, good morning.

David Nord

Good morning, Steve.

Steve Tusa

What are you guys seeing out there in T&D land? It’s been kind of a market that’s been stable for – I don’t know 10-years now. Just curious as to what you guys – what your customers are telling you on spending priorities and what 2017’s potential like there?

David Nord

Stable was another word for uneventful and disappointing, because we keep expecting it to pop.

Steve Tusa

No. No, Dave, disappointing, stable is actually pretty good these days. I mean, it’s certainly [multiple speakers] right?

David Nord

Yes, I agree with you. I mean, after a number of years of expecting this uptick and not getting it, but still continuing to grow at a modest, but at least stable rate, is certainly the kind of market that we prefer. It’s easy to navigate through. We continue to hear about the need to invest and the willingness to invest.

I think the uncertainty that’s out there, probably the biggest uncertainty is exactly where to invest, particularly when you’re – thinking about renewables and distributed generation. How much you’re going to invest in a big facility versus a smaller localized facility, and what is that grid look like going forward. And I think that’s the – that’s probably one factor that plays into the caution and more of the modest investment levels. That’s probably the only unique thing that we hear.

I mean, I think, the question is whether that’s the kind of thing that’s influencing some of the T side, as Bill referenced, and we have pretty good visibility to a project knowing that they are pushing out, but not exactly why they are pushing out. It’s not for necessarily a lack of funding, and some of it may be for concern about whether that’s the right place to invest the T, or weather there’s some alternative that has to be considered.

So it’s kind of more of the same. But we’re very keen to, and we’re listening intently and trying to study where the investments might end up going in the next three to five years.

Steve Tusa

Got it. And then can you guys grow electrical margins year-over-year by the fourth quarter, adjusted for restructuring? Is that in the plan?

David Nord

To grow margins, I don’t have an answer to that.

Steve Tusa

And I guess, while you are looking for that one, any color on distributor about inventory levels and whether you’re seeing anything move around there? And then that’s my last one. Thanks.

David Nord

I think the distributor inventories have come down. I think there was a pretty high level at the end of the first quarter, because I think there were – there was a lot of build and slower demand. I think we’ve seen some of that working its way down. I don’t think it’s still at optimal levels. I still think there’s a little bit of overhang there, and I think that’s influenced certainly, the early part of the second quarter was a big influence. But I think I expect that we’ll probably see a little more of that in the second-half of this year depending on the external demand. But I think we see that – I’ve seen that in the NIMA data when it looks at manufacturing shipments. I think are certainly have been weaker and I think that’s evidence of the high – higher inventory in the channel. Okay.

Steve Tusa

Got it.

David Nord

As far as the margins?

Maria Lee

Yes, so for the – by the fourth quarter in the Electrical segment, we do think that the – we should be able to get back to where we were. I mean, that’s assuming the improvement from the comparison Harsh and Hazardous. So it’s as long as that market the keeps staying in sort of bouncing along the bottom as we see, and pricing stays within the range that we assumed across the Electrical segment. But so the short answer is, yes, I think that the margin should improve by the fourth quarter and be in line with last year.

Steve Tusa

Great color. Thanks, guys.

David Nord

Okay.

Operator

Your next question comes from the line of Mike Wood from Macquarie. Your line is open.

Mike Wood

Hi, thanks for taking my questions.

David Nord

Good morning, Mike.

Mike Wood

Good morning. Can you provide us with your latest view on restructuring expense levels longer-term and in 2017, if we keep along this kind of flattish end market backdrop with you guys doing 1 to 2 points of organic growth?

William Sperry

Yes, Mike, I think we would expect the restructuring program to kind of taper down a little bit. And I’d say before we started this program, we had kind of an annual year-in, year-out, we’d spend on order of magnitude nickel on it and never talked about it, because I was always in our year-over-year compares. I expect our base level to be higher than that.

So as we taper down, maybe that’s a dime or more, but it’s having to be done every year. And so I expect we’ll be doing more of it than we have in the past. But we would expect that to taper down over the next couple of years the – really the way that plan gets deviated from is in. If there’s ever a large facility that can create a decent amount of lumpiness that they would have to be managed. But barring that, we would anticipate some form of tapering.

Mike Wood

Thanks. And a question on mix in Electrical. I’m curious what core industrial products you would most be excited about, coming back first potentially to help regain some of that lost mix that you’ve suffered in the recent downturn?

David Nord

Yes. So there’s – I’m not sure if your operative word there was core industrial. But to the extent that some of the heavier industrial came back, that would be very helpful from an industrial mix perspective. So things that we would sell into steel mills, for example, would be good examples of heavy-duty kind of industrial.

But on the more core lighter side, really the mix within our wiring device receptacles and plugs and the like, the more industrial driven, the mix there that would be really welcome to have that come back rather than being skewed towards commercial as it is now.

Mike Wood

Okay, thank you.

David Nord

Okay.

Operator

Your next question comes from the line of Joshua Pokrzywinski from Buckingham Research. Your line is open.

Joshua Pokrzywinski

Hi, good morning, guys.

David Nord

Good morning.

Joshua Pokrzywinski

Just to stay on Lighting for a second, could you run us through just what volume growth was in the quarter? I know, we’ve kind of picked around the edges here, but maybe just to hit the nail on the head with volume in Lighting?

David Nord

Yes. So our sales growth for the whole business was around 5%. Price mix was a couple of points, so volume would have been in the seven point range. And if you can pick apart what resi was at the lower end, components at the lower end, and C&I fixtures at the high-end of volumes for the quarter.

Joshua Pokrzywinski

Terrific. And then on price, cost, more broadly, just a couple of cleanups. I think you mentioned that you’re going to start hitting easier comparisons on the Harsh and Hazardous side, it’s starting to flatten out sequentially. Is the margin comment or the mix comment, more of a year-over-year, or are you seeing some actual improvement in the underlying margins as we head into the back-half? I’m trying to discern what’s easier comps versus maybe any signs of pricing or some of the margin stability there?

Maria Lee

I think it’s largely based on the easier comparison. There is not an embedded expectation for a significant difference in the markets. And to-date, actually the pricing has been relatively stable. So we’re not seeing a big shift there yet.

Joshua Pokrzywinski

Great. And then just one last one. Dave, I don’t know if you mentioned it explicitly, but I think there has been this expectation that pricing and power starts to catch up with some of the raw material deflation you’ve seen, clearly 2Q that hasn’t happened yet. But maybe give us the fresh look on how power price, cost looks in the second-half, just based on what you are booking today, and maybe having some visibility here through July?

David Nord

Yes, I think that pricing at power does flip to negative in the second-half. But we still think that it will be certainly at a manageable level. We’re not expecting any major declines in that and particularly as you point out; we have visibility to some of that. To the extent that any indexed commodities would drop, you’d – we have to give that back just by contract. But otherwise, we think that there will be some negative implication in the second-half, but certainly at a modest level, at least, that’s our current look.

Joshua Pokrzywinski

Gotcha. There hasn’t been some big inversion in pricing just because we flipped to 3Q?

David Nord

No, no.

Joshua Pokrzywinski

Okay, great. Thanks, guys.

David Nord

All right.

Operator

I will now turn the call back over to Maria Lee for closing remarks.

Maria Lee

All right. Thanks, everyone. This concludes our call, and Steve and I will be available following the call for questions. Thanks again for joining us.

Operator

This concludes today’s conference call. You may now disconnect.

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