Hubbell [HUBB] Conference call transcript for 2022 q1
2022-04-26 14:14:05
Fiscal: 2022 q1
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . And now, it is my pleasure to hand the conference over to your first speaker today, Dan Innamorato, Vice President, Investor Relations. Thank you. Please go ahead.
Dan Innamorato: Thanks, Operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our first quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I’m joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note that our comments this morning may include statements related to the expected future results of our company and 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 considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. And with that, I’ll turn the call over to Gerben.
Gerben Bakker: Great. Thanks, Dan, and good morning, everyone, and thank you for joining us to discuss Hubbell’s first quarter results. Hubbell is off to a strong start in 2022. Our markets remain healthy, with broad-based demand driving strong sales and order growth. In particular, our utility Solutions segment continues to build backlog, even as customer shipments picked up sequentially. Grid modernization initiatives continued to drive robust investment levels from our core utility customers, as they seek to upgrade aging infrastructure and integrate renewables onto the grid. Operationally, supply chain headwinds persist. Inflation and raw materials and labor, tight availability, and higher cost of containers, as well as shortages in key materials such as chips and resins, are leading to higher input costs and manufacturing and transportation inefficiencies across our businesses. However, we are executing effectively through these challenges to serve our customers and deliver strong results for our shareholders. We continue to accelerate our price and productivity initiatives, and we have now turned the corner on price material, which was a net positive in the first quarter. The combination of strong volume growth and positive price material enabled us to return to year-over-year margin expansion a quarter earlier than we had initially anticipated. Overall, we are pleased with the performance in the quarter, and we are confident that we are well positioned to continue executing effectively over the balance of 2022. While the macroeconomic environment remains dynamic, our strong order book, significant price traction, and operational discipline, gives us visibility and confidence to raise our full year outlook today, which now reflects mid-teens adjusted earnings per share growth. We will provide more color on the full year outlook later in the presentation. Before I turn it over to Bill to walk you through the financial results, I'd like to highlight some key accomplishments in the quarter. First, on capital deployment, we deployed $150 million of proceeds from the C&I Lighting divestiture to share repurchase, returning cash to shareholders, and generating approximately $0.10 of accretion in 2022, in line with our initial guidance. Our balance sheet and cash position is strong, supporting our bolt-on acquisition strategy, which we expect to continue executing over the short and long-term to generate attractive returns for our shareholders. Next, I'm proud to highlight that Hubbell received two of four annual awards from a major customer. Hubbell Power Systems was awarded the Above & Beyond award for successfully managing through supply chain constraints to serve its customers, while Burndy was awarded The Operational & Technical Excellence Awards for improvements in operational efficiency and proactive management and communication. This recognition is particularly well deserved for our teams, who are working so hard to effectively serve our customer needs during these challenging times. Not only is this an example of the strength of Hubbell’s individual brands and businesses, but it also demonstrates the quality of our portfolio across utility and Electrical end markets. We have made good progress in our efforts to go to market collectively as one Hubbell, and we see significant opportunity ahead in building on our strong channel partnerships to better serve our customers. And finally, Hubbell is honored to have been named one of 2022’s World's Most Ethical Companies by Ethisphere for the second consecutive year. I'd like to thank our over 17,000 employees who demonstrate the highest standard for integrity each and every day, and note that this achievement is a recognition of their commitment to compliance and ethics as a foundation of our strategy and culture. We also released our second annual sustainability report in the first quarter, highlighting the progress we have made on ESG over the past several years as a core element of our business strategy and product offerings. We encourage all our stakeholders to view this report on the sustainability page of our website, and to continue to actively engage with the Hubbell leadership team on ESG topics. Let me now turn it over to Bill.
Bill Sperry: Thanks, Gerben. Good morning, everybody. Appreciate you joining. I'm aware of how busy the day is, and I'll try to keep my comments short and sweet and open with a happy birthday to our own Dan Innamorato today. And as Gerben said, really off to a strong start to the year. And there's really two notable management accomplishments that are driving the results, and you'll hear us comment several times. The first is price. I know you're all aware that we got behind last year, and as inflation persisted throughout the last of the five quarters, we relentlessly kept working with our channel partners to raise price. And I think the fact that we caught up and created a tailwind in the first quarter of ’22, is really the good evidence of the high quality of our products and how well positioned they are, both in front and behind and at the meter where essentially at low-cost relative to the value that they add. The second besides price was our production levels. I think as you know, we've been operating for a while constrained, not by orders, but constrained by supply chain. And so, it was a great sign to see sequential increase from Q4 to Q1, which is typically a decline in output and for us to increase the units there, some evidence that getting better and fighting through some of the supply chain constraints. And when you have both that price and production level raise, and with the backdrop of strong orders, you're going to see very high growth in sales and earnings, which is what you'll see in our results released today. I'm going to start on Page 4 of the materials. You can see sales increase of 21% to $1.16 billion. That 21% was driven by organic growth as well as price. As I mentioned, that's a comparison to the prior year. Sequentially as well, we saw mid-single digit growth versus the fourth quarter of last year, with both units and price being up sequentially. At the operating profit level, you see 20 basis points of margin expansion to 13.9%. Welcome to see that return to margin expansion, and we really have the price material tailwind complementing the volume growth to help drive that. Earnings per share, you see an increase of 30% year-over-year to $2.12, driven by the operating profit growth, as well as some other income tailwind. On the cashflow side, we had a use of $36 million in the quarter. The extraordinary high level of sales required a large investment in receivables, and we also invested aggressively in inventory. And we continue - Gerben pointed out the customer awards that we received. We continue to try to serve the customer, make sure we've got inventory on hand, and keep our service levels as high as possible, given some of the choppy operating environment that we're in. On Page 5, you see the results laid out a little more graphically. That 21% sales growth unpacks into 12 points of price, and nine points of units. That skews slightly higher for the utility segment, which we'll talk about separately, both in units and price, but the Electrical segment also showed very strong growth. So, a very broad-based demand profile here. And despite the 21% increase in shipments, orders were up 25%. So, we actually built more backlog in the quarter. At the operating profit level, you see the impressive 22% growth to $160 million in the quarter. And that volume growth and price material tailwind really combining to create some nice lift. On the margin side, there's a partial offset for the non-material inflation. Think of things like compensation costs and transportation costs eating into some of those gains, as well as some inefficiencies in the factory where the supply chain and consistency, think of both labor and material not being available as consistently as is typical. And so, when you're operating with high levels of volume, there are some inefficiencies in spending that are going on inside of our plants. The EPS is up 30%, just under $0.50 of new earnings coming from all this growth to $2.12. The growth rate is higher than the OP growth rate because of some - we have interest expense lower as a result of a bond refinancing we did last year, as well as transition services income, but the taxes were comparable in the periods. So, not a tax driver there. Here, you see the cash flow use laid out compared to a small source of cash last year. Typically, the first quarter is our weakest cash flow year - or sorry, weakest cash flow quarter in the year, and we still anticipate meeting our initial targets on free cashflow. This is just early investment in the year at a time of high growth in receivables first and inventory second. We're going to now unpack our results by segment, and we'll start on Page 6 with our Electrical segment. You can see the impressive growth of 19%, all organic. 10 points from price, nine points from volume. Quite a broad-based contribution to the demand profile. Light industrial, up in the mid-20s. Data centers and telecom, I would note as verticals inside of that space. Non-res similarly up, strong in the mid-20s. Heavy industrial up in the mid-20s. Strong commodity prices that we see in both steel, for example, and oil and gas are good indicators for our heavy industrial business customers still pushing demand up. And the exception to the really strong outlook is on the residential side. We had some tough compares to a very heavy amount of home remodeling done last year, as people were spending more time in their house than they wanted to, no travel, not commuting to work. We saw a lot of attention spent remodeling, which has been difficult to compare against. On the OP side, double digit growth for the Electrical segment at 11% to $58 million. You see that the margins, though, did not expand in sympathy with the company, and though we got good drop-through on our incremental volumes and price material was favorable, that was more than offset by the inflation in transportation. And that was really most acutely felt by our residential business, which is essentially a purchase for resale, and the container costs, transportation costs become a very large hit to that business as those costs spiked up. And as well as extra spending on restructuring. So, if the residential business had had a comparable year to last year, you would have seen comparable margins and the extra investment in restructuring, which will create productivity and higher margin in the future, cause an additional half point drag. So, I think the underlying business is very healthy here. And Page 7, we transition to showing the utility segments, and very strong performance. We've built quite a strong franchise here on the utility side. 22% growth, which is actually 23% organic. We sold a very small product line from inside the Aclara business. And that 23% organic unpacks to 13 points of price and 10 points of volume. Again, kind of note that the volume was 7% higher sequentially versus the fourth quarter of last year. And inside the utility Solutions segment is where we have the more pronounced buildup of backlog. And so, getting the bottlenecks eased out and our production capacity up, has been a very welcome sign. And you can see that drop through on the operating profit side. But finishing on sales, really saw strength from the power system side and the transmission and distribution components, as well as gas components. We had growth in the 30% range. And on the communications and control side, the Aclara AMI and meters business continues to be constrained by the lack of availability of chips, and we expect that condition to persist throughout the year. And - but the entire segment is still powering with very strong growth. And you see the drop-through effect of having price material tailwind, which this was the quarter that the power team caught up on that. And you see the welcome lift in margin expansion of a nearly a point. And so, you’ve got above 20% sales growth, with 90 bps of margin expansion. You get a lot of OP lift, and really helping add to our earnings per share story. So, that gets me to Page 8 and the impact of those trends and results on our outlook. And I would say, usually we would consider this to be too early a point in the year to consider a raise, especially with as much macro uncertainty as there is, but we started with a higher-than-normal backlog. We added to that backlog, despite shipping 21% increase in sales. And the prices really seem to be sticking, and we're going to get some incremental price. And so, that's causing us to anticipate higher sales than we had initially guided you to, and we're going to reflect that new outlook in this guidance. So, when we came out in January, we were describing an expected sales growth of 8% to 10%, which was comprised of 5% price and 3% to 5% of volume. And so, given what we've seen through the first quarter on price sticking, as well as some anticipated incremental price that we're going to ask for, we believe that price will be more in the range of 7% for the year. And that volume which we had anticipated at 3% to 5%, we feel now would be coming through at 4% to 6%. And the effect of this change at the sales side, effectively imagining the price being absorbed by incremental inflation, so it leaves us an extra point of volume. That extra point of volume we think should drop on the order of $0.20 to the year. And so, what we've done is raised the midpoint of our outlook range from $9 to $9.20. So, in other words, we've kind of maintained our margin outlook, and we've maintained the percentage drop-through of free cashflow that we're expecting between 90% and 100%. Worth noting, I think, that there are no new incremental acquisitions included in this guidance. We are pleased that that pipeline seems to be refilling, and we feel we’re quite intentional in finding verticals that have high growth and high margins in them. And so, just a comment there that acquisitions are not included in this outlook. So, with that, I will turn it back to Gerben for some closing remarks.
Gerben Bakker: Great. Thanks, Bill. And before we begin Q&A, I’d just like to underscore a couple of key points from this morning's presentation. Hubbell is off to a running start in 2022, after strong execution in the first quarter. And while the macroeconomic environment remains dynamic and uncertain, we have strong positions in attractive end market, with long-term growth drivers, and we are executing well in the areas that are within our control. We are confident that we are positioned to deliver on our 2022 outlook, which we raised this morning, and drive strong results for our shareholders over the long-term. And with that, let me turn it over to Q&A.
Operator: Thank you. . Your first question comes from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.
Jeff Sprague: Good morning, everyone. Maybe just start off on the volume side of the equation, and the reason I go there, we're seeing a lot of results here recently where companies are posting topline that maybe is almost all priced with little or no volume. These results, therefore kind of stand out in that regard, even though the price is impressive. If you look at in particular what's going on in the utility market, is there anything additional to add around, I don't know, infrastructure spending coming in or other actions? Or is this just really kind of sort of an uncorking of some of the supply chain headwinds, and you're kind of better able to just kind of keep up with the overall pace of demand here?
Gerben Bakker: Yes. Jeff, let me maybe break those down into two sides. One is on the demand side and one is on the supply side. Fundamentally, demand is strong in the utility market, right? We've talked about the need to harden the grid, upgrade the grid. And that's still absolutely fundamentally there. And as Bill stated, we continue to see orders exceed shipments. So, we’re building a backlog. Now, of course, there's an element of lead times extending, and that creates maybe a little bit of a unnatural demand, but it so far exceeds a supply right now that we believe, even if that moderates, that at the levels that we're producing, we can maintain those and continue to see growth. The second part of it is, we were able to increase our productive output. And no small feat, I would say. It’s part of why I'm so proud of the team. We’re being recognized for some of these service awards. Our customers are truly telling us that during this time, we are outperforming in delivering. It's a real focus for us. I would say the things that we are doing on the supply chain side, make us more resilient, right? So, we spend a lot of time approving alternate materials and design, qualifying new suppliers for redundancy, making capacity investments, particularly in the utility business. We’re making some investment there because that business really seemed to grow throughout the pandemic, and automation. So, I would say the investments that we're making into the business are helping us improve in what we've seen, not at the rate we've wanted it to be, but we have seen quarter-over-quarter continued improvement, despite what are still very, very challenging times, whether you look at containers or supply chain or the Omicron that we dealt with in the first quarter. So, I think we're just building a more resilient operation, but still plenty of chance. So, hopefully, I answered both sides of the equation there for you.
Jeff Sprague: Yes. No, thanks. And then just again on utility, there's been a little bit of concern, and I don't know if it's just kind of chatter at this point, but just pressure on the consumer, Bill, from inflation possibly feeding back into some pressure on T&D spending. I mean, obviously, that didn't show up in your results in this quarter. I just wondered, to the extent you could speak to - do you see that creep into the conversation anywhere? Maybe unpack kind of CapEx versus OpEx on T&D and the sort of visibility that you have looking forward kind of 12 to 18 months in that segment?
Bill Sperry: Yes, I think - I don't know that we have any particularly acute insight into the balance there. I mean, I think it's quite an important question as to how supportive the PUCs can be, and if the consumer starts getting quite pinched here. I do think you're right that utilities have been quite effective in getting a lot of their spend into capital and away from O&M such that they can be - they ultimately would get reimbursed with a return on capital for that. But I think your question is one that we'll have to keep watching because it's not something that's evidencing itself yet in any of our demand profile.
Jeff Sprague: Right. Thanks a lot. I'll leave it there. Thank you.
Operator: Your next question is from Steve Tusa with JPMorgan. Please go ahead.
Steve Tusa: So, I guess my question is really around kind of the second quarter. How do we think about the progression over the course of the year? And is there any lumpiness with this price-cost dynamic that's going on that we have to think about when it comes to either year-over-year sequential performance as we kind of move through the year? Because clearly the year looks conservative here, but I'm just wondering how that plays out seasonally and sequentially.
Bill Sperry: Yes, I think, Steve, as we look at the second quarter, there is some momentum in the sales side. And I think you're right to point out that the commodities, starting really at the very beginning of March, I think triggered by the invasion, started to reinflect and reinflate, and that creates only the need to keep getting price. And so, we're anticipating getting some more in the second quarter and trying to just navigate through that. But we are just anticipating, Steve, with the visibility that we have in our book and the backlog, that we'll have some similar trends to what we saw in the first quarter. I'd say of note, we usually see a decent sized seasonal pickup from first quarter to second quarter. And because the first quarter was really using some of its backlog to support its levels, I don't think we'll see that same level of sequential pickup up of seasonality. I think that'll feel a little more muted and it'll look a little more like momentum, I would say.
Gerben Bakker: Maybe the only thing to add to that is, as we are one month into the second quarter, the order patterns remain quite robust as similar to what we saw in the first quarter, so.
Steve Tusa: Right. So, a pickup, but maybe not as much as normal seasonality?
Bill Sperry: Yep.
Gerben Bakker: Absolutely.
Steve Tusa: One more question for you. What happens when these draws roll over? Historically, you guys have had some negative pricing in some instances. What's the kind of playbook for when things soften up on the input side?
Bill Sperry: Yes. I think it's going to start with the dialogue we've been having with our customers in the channel, Steve. And we've been very clear that our price increases are not a surcharge on steel or copper or something like that. It's really part of quite a broad-based inflation profile. So, yes, commodities are a big part of that. Yes, people costs, compensation costs are a big part of that. Transportation costs are a big part of that. Medical is a part of that. So, even if let's say steel or copper were to start to soften, we've, I think, got the right dialogue with our customers that that's not an immediate cause for a price decrease. And so, at the same time, I'm sure those conversations will be had, and we'll just need to make sure we keep reinforcing the value proposition of what our products play in front of the meter, behind the meter, and the solutions they provide. But also, it just feels to us, Steve, like there's still a real shortage in supply. And so, having the supply is really worth something. And that's why Gerben, I think, keeps pointing out the awards that we're getting for serving the customer and trying to keep that as positive a relationship as we can. So, that'll be a battle, but we feel we’ll be up to it.
Steve Tusa: All right. I hope the Rangers give Dan a win for his birthday tonight, and I'll go figure out my car issues. Thanks.
Operator: Your next question is from Tommy Moll with Stephens. Please go ahead.
Tommy Moll: Morning, and thanks for taking my questions So, backlog up quarter-over-quarter. One gating factor you highlighted is just the chip shortages that have impacted shipments for your AMI meters business. I'd be curious for any context you can provide there, but also more broadly to the overall enterprise, what additional detail can you give us on maybe the magnitude where you’re revenue constrained or the areas of constraint that are most acute? Thanks.
Bill Sperry: Yes, I think the areas, Tommy, if I were to point to them, on the material side starts with chips. You pointed out the area of our business that that impacts. I would say resins would be an example of another material that's not been consistently available. And that causes some disruption in our enclosures business inside of power systems, as well as our Electrical Products business inside of the Electrical Solutions segment. But I think also other inputs outside of those materials, I do think that our absenteeism continues to be higher than if I air quoted normal going back a couple of years pre-COVID. And so, when you combine sort of a 9% volume increase going through the pipe, and you're staffing at individual sales, it’s kind of uncertain day to day and week to week, and you don't exactly know which materials you're going to have. We just are ending up with spending more inside of our plants and not running as efficiently as we could. And I think the third place to point out is you’ve got materials, you’ve got labor, and the third is transportation. And that's really been most affecting, I would say, our residential business where they've got a purchase for resale model, taking a container in. As those containers prices really spiked, that just really ate into the profitability of that business. So, I'd say those are the most acute contributors to preventing us from being - firing on all cylinders here.
Gerben Bakker: Yes. And I'd say on those two, you're absolutely right, Bill. Those are two that are fundamental. They, in our view, will probably take the rest of this year, with chips probably into next year to solve that. So, one of the things we're spending a lot of time on, as I said at the beginning, is to kind of redesign product, whether it's alternate materials or alternate design with chips. Now, chips are going to be hard to get, no matter what chip you do. So, it's a little more challenging. But what’s really causing so many inefficiencies is that consistency of supply. And that's probably a bigger issue for us right now, is the starts and the stops. And when you're running factories, that's not good for output and even worse for cost. So, that's where we’re perhaps struggling the most in that it's not the most efficient cost on that volume that we're getting. And then you see the fall-through on that volume not being as good as it could be.
Tommy Moll: Appreciate the context there. Shifting gears for a follow-up, on distribution automation, you talked about some growth-related investment. I wonder if you could frame for us what that entails. What are the opportunities you're chasing down and what's a rough type of timeframe to be able to harvest some benefits from that investment?
Bill Sperry: Yes. So, you're talking specifically about DA or specifically about the investment that we put in our outlook bridge?
Tommy Moll: My assumption was the former as a subset of the latter, but ...
Bill Sperry: It is a subset. It's just not all of it. So, but I think - so let's start with the bigger piece. And I'd say some of that investment has gone into capacity, and as Gerben highlighted in our power system segment. But a decent amount is going into new product development. And Tommy, we've got an Investor Day planned in the next six weeks or so, and we're eager to see some folks there. And we're anticipating doing a little bit deeper dive into some of the new product development that we're working on. But we’re targeting certain applications, certain areas of high growth that we think we've got the right to compete in. And yet your question is a good one, which is, that kind of investment isn't going to pay back this year. We’ll start to see some benefit next year. But I really think you're right to point out that that's got a couple of years before you really start to see that. And yet we think that's a really important part of the story going forward is being able to grow faster than GDP and to really get the gross margin growth by having new products that have a value proposition that can extract a better gross margin. And on the distribution automation side, it just happens to be one of those areas where we think the control and protection of the grid in between the meter and the infrastructure is really an area that's got just a lot of opportunity for growth, given some of Jeff's questions about the need for utilities to keep their O&M down. And it's just a place where we think we've got a right to play and a right to win. And so, that just - you're right to call that a subset of the other.
Tommy Moll: Thanks, Bill. I'll turn it back
Operator: Yes, sir. Our next question is from Nigel Edward Coe with Wolfe Research. Please go ahead.
Nigel Edward Coe: Thanks. Good morning, guys. So, I was 10 minutes late joining the call, so I apologize if you've addressed this already. But what was the major reason for the divergence between the electrical margins and the performance down margins in Electrical, and obviously very strong in utility? It sounds like logistics and inflation, more impactful there, but any more color there would be helpful.
Bill Sperry: Yes, I think a couple of things that were specific inside of Electrical, one was the business unit facing off against residential, Nigel, is facing some difficult compares. The first quarter, really the first half of last year saw some extraordinary spending in the home remodeling area because people were essentially trapped in their homes and weren't allowed to get out and about. So, they decided to invest in their nest, as they say. And so, those volumes were down, and then that was exacerbated by the fact that our resi businesses purchased for resale largely. And so, the cost of containers then to bring that product across the ocean, really, really hampered the margin. So, if you - if we had had the same year as last year, you would have seen margins flat in Electrical. We spent an extra half point on restructuring in the segment, and we are excited about the fact that that'll create productivity and margin next year. So, we think a very good investment. But those two things, you would have seen margin expansion without those, but you're right that just the non-material inflation and some of the inefficiencies that Tommy was just talking about, that sort of eats into the tailwind provided by volume and price material tailwind.
Nigel Edward Coe: Okay. Obviously, lots of questions on price already, but I'm just curious if you - maybe just a bit more definition on how you see the price material balance sort of through the year. And what is your assumption, just to be clear, on commodities here? So, is it flat from here, down for the year? Or are you seeing some modest, I don't know, deflation? That's not the right word, but what are your assumptions on commodities?
Bill Sperry: Yes. Our assumption is that there's continued to be inflation throughout the year, and that materials are going to cost more than they did last year. And we are priced for that and have actions in the second quarter consistent with that. But it's also important to say that our pricing is informed by more than material, because we certainly, on the transportation side, on the human resource cost side, medical, salaries and wages, benefits, P&E, our sales people are back out on the road. So, there is just non-material inflation, and it’s more, it's overwhelming what you can do with productivity initiatives. And so, I think, Nigel, it puts a little more burden on price. And so, it's maybe to our benefit that we have been so obsessively focused on price as a company for the last five quarters, because we really, really need it.
Nigel Edward Coe: Yes. Well, 12% price is pretty wild. And then just finally, a quick one on the oil and gas - your oil and gas business. Can you just mark us to market on where that business is right now? I think it used to be mainly an offshore business, but in light of the oil price and the drill baby drill kind of stance from the administration, what are you assuming for that business this year, and where are they tracking relative to kind of 2014 levels?
Bill Sperry: Yes. So, it's down to about 5% of our sales at this point, Nigel. But it saw a good quarter that's inside - we combine it in our heavy industrial piece inside of the Electrical segment. And we saw good return of margins as the volume came back. And so, we continue - as important as energy is to the economy here, we continue to feel that us providing explosion-proof products, mostly in the upstream part of that process, it's - I think its near-term future with energy prices where they are, looks pretty good. It just is a much - it's quite a small piece of the total at this point.
Nigel Edward Coe: Yes. Okay. Thanks, Bill.
Operator: Your next question is from Chris Snyder with UBS. Please go ahead.
Chris Snyder: Thank you. So, in the prepared remarks, the company noted that orders outpaced revenue, leading to further backlog build. Can you provide some color on what the 2022 guidance assumes as it relates to this backlog, whether it be released at some point during the year or even just further build over the next three quarters?
Bill Sperry: Yes, it's a very interesting question, Chris, because I don't know that we have a great crystal ball on - I think we would start with the premise that orders of 25% is probably not the sustainable rate of orders that we anticipate seeing over a prolonged amount of time. And so, I think your question is getting at, when will those orders start to more normalize? And I think the contributors right now continue to be, they're expecting price increases. So, you'd rather put the order in before. The on-time - the promised delivery date is on an extended time, rather than fast. And so, they're ordering more to make sure they get in line. And I think Gerben was saying, on the utility side, there's still quite a bit of fundamental drivers on the volume side. And so, we think as lead times come down - so as the supply chain smooths out, that should bring the orders more in line. I'm not really sure when that happens. And so, we don't really have something explicit, but I think we are saying that we see enough momentum in orders, combined with enough backlog, that gave us the confidence to raise our sales outlook for the year by two points of price and one point of volume. But your question is harder for us to really see, and we're sort of hoping that as that correction happens, we've got the backlog in place to be able to make that a soft landing rather than a dislocation. And that's - at this stage of the game, that's our anticipation.
Chris Snyder: No, I appreciate that. And I totally understand it's a hard question to answer with a lot of moving parts. So, guess for my follow-up, maybe a bigger picture one on utility. Obviously, this has always been a long cycle resilient business, but with the addition of Aclara, which now presumably has a pretty sizable backlog, and an increased focus on renewables, which appears structural, how's the floor on this business been raised? And when I say floor, I'm talking about it from a growth perspective, just because it feels like these secular drivers are now a bigger piece of the business and it's somewhat hard to see why those secular drivers reverse away from the company. Thank you.
Bill Sperry: Yes. I would say, Chris, and Gerben may have more to say, but we traditionally have really probably thought about that business, that segment as a GDP grower that had a really high MRO driving base to it. And so, we would have, kind of in a traditional medium range plan, had a low single digit growth rate for that. And I think we've seen that fundamentally shift towards a mid-single digit growth rate. And I think we continue to believe that's the case. So, I totally agree with you. kind of went from a GDP MRO to sort of a secular grower, and that's because we can garner some decent margins in that area. That's a welcome shift from us. And Gerben may have more to say.
Gerben Bakker: Yes. No, I would be bullish on both really sides of that portfolio, because as more renewables come up onto the grid and the grid continues to get older, it just is very, very stressed. So, I'd say on the core business it’s just a lot of hardening going on. That's multi-year projects. I see that business GDP plus as well. And then, certainly on the Aclara side, the automation, the grid automation, the modernization of the grid, making it more efficient, we've talked a lot about that, how that has attractive growth. So, I'm quite bullish on that whole utility business.
Chris Snyder: Thank you.
Operator: Your next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead.
JoshPokrzywinski: Hi. Good morning, guys. So, within the new four to six on the volume piece, how should we think about what you guys are sort of holding back as contingency, unable to deliver in backlog because of the supply chain? So, I guess, maybe said differently, like, so if you could get everything you needed to supply chain wise, like what does that four to six look like?
Gerben Bakker: Yes. I mean, I think it's a hard question because if you looked at our order rates, they're so far exceeding out, but if you could miraculously solve everything and have unlimited capacity, it could be much harder, but that's not the reality. I think as we kind of look at the year, I think Bill said it, we do see momentum carrying into the second quarter. Where it gets more uncertain is towards the back half of the year for us, and probably most pronounced in the fourth quarter where we're projecting perhaps a more seasonal - return to a more seasonal level. So, if orders hold up and we can continue to solve for supply chain issues and keep our productive capacities increasing, there could be some upside there. But it’s, I'd say by single digit, small increments, not huge. The order patterns should not be reflective of what the possibilities are.
JoshPokrzywinski: Got it. Okay, that's helpful. And then on the structuring front, I mean, as much as there's been kind of a multiyear assessment of the footprint, you guys sort of have different challenges today than you might have three years ago. I think for bandwidth purposes, for maybe contingency on where you need to make stuff, like how much has maybe that footprint assessment changed as a result of what we've gone through over the past, call it year? And are you spending that restructuring differently than maybe you had been historically?
Bill Sperry: Yes, I think that we had, as you pointed out, sort of started out with a multi-year vision, accompanied with a multi-year Gant chart of projects. And we feel really happy with the result of those. I'd say the biggest thing that's changed to inform that, Josh, is not COVID. It's been the creation of Electrical segment and bringing all the businesses on that half underneath a single management team. And I think as they think about competing collectively, they see opportunities to share production and become more efficient with the square footage. So, what we started, I think, has been breathed even a new - some new life into it. And again, we'd anticipate talking to you a little bit about that at our Investor Day in June, if you have the chance to join us. I think you'll hear Pete Lau, who runs the Electrical segment, talk a little more about that. And so, we think that - I'm sort of happy to try to keep the spending sort of flattish so we don't really have to talk maybe about year-over-year. I don't want to kind of distort our performance. And so, I kind of like - I like where we are in terms of the spending and the saves being kind of creating some earnings momentum, but not necessarily creating dramatic headwinds from year-over-year anywhere.
JoshPokrzywinski: Got it. That's helpful. I'll leave it there. That’s all I’ve got.
Operator: Your last question is from Christopher Glynn with Oppenheimer. Please go ahead.
Christopher Glynn: Thanks. Good morning. Congrats on the recognitions and on executing all that price. Curious if there's any sense that the need for incremental pricing is starting to taper, notwithstanding that you have some incremental price coming through in the pipeline. But from a holistic sense, is there any basis now to start to develop that view of a leveling on the horizon?
Gerben Bakker: Yes. Maybe I'd say if we compare it to last year, the magnitude and the frequency is, we clearly anticipate that to be less. However, I think it’s important what Bill pointed out. We're still seeing inflation this year. We saw tapering a little bit towards the end of the year, going into this year, particularly steel, but after the invasion, we've seen not only steel, but aluminum, copper, and then the normal ongoing inflation. I think if you look at the numbers, they're quite robust for inflation. So, we have additional pricing actions that we'll need to take to continue to offset price cost. We've done quite good at it. So, I'd say, more actions are expected, but not at the probably frequency of magnitude that we saw last year.
Christopher Glynn: Okay. And want to go back to Chris's question. We talked about the further - the advance of the organic profile for the Utility Solutions. You're at really high levels right now, and T&D up 30%, 31%, maybe mid-high teens volume on nicely positive comparisons. Is it possible for correction at this point, or is this just the fundamental higher gear shift from connecting renewables and those fundamental secular drivers?
Bill Sperry: Yes. I think the nature of a correction that we could envision, Chris, would be kind of what Gerben was describing. We had the magic wand that could make as much power systems products as was demanded. And the lead times went down to overnight. I think demand would quite adjust to what's needed. And I would argue though that what's needed still is something in the mid-single digits order of magnitude greater than last year's. So, the correction, I don't really see being in the form of it going to contraction. I see it settling in at that mid-single digits. And the question is, do we get there nice and smooth, or do we get there rapidly? And how do we - do we have enough backlog to bridge that? And those are - that kind of question is just is a little bit difficult for us to predict.
Christopher Glynn: Okay. great. Thanks for those thoughts, Bill.
Operator: And that ends the question-and-answer session. I will now turn the call back over to Mr. Gerben Bakker, for closing remarks.
Gerben Bakker: Great. Thanks, everyone, and I appreciate the participation and engagement with us this morning. I'd like to close with reminding you that our investor conference will take place in person again after a few years, a couple of years I think it had been, on June 7 in New York City. And we look forward to sharing further detail on our strategies and our long-term value for customers and shareholders with you there. So, thank you and have a great day.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect. Stay safe and well.
