Title

Presentation

Hubbell Incorporated misses on earnings expectations. Reported EPS is $3.5 EPS, expectations were $3.73.

Operator: Good day, and thank you for standing by. Welcome to the Hubbell Incorporated First Quarter 2025 Earnings 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. [Operator Instructions]. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Innamorato, you may begin.

Daniel Innamorato: Thanks, operator. Good morning, everyone and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the first quarter of 2025. 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 our comments this morning may include statements related to the expected future results of our company. These are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release will consider to incorporate by reference of this call.

Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled for the comparable GAAP measures, which are included in the press release and slides. Now let me turn the call over to Gerben.

Gerben Bakker: Great. Thanks, Dan. Good morning. Thank you for joining us to discuss Hubbell’s first quarter 2025 results. Our results in the quarter were driven by continued strong operating performance in our Electrical Solutions segment and a return to organic growth in grid infrastructure, offset by anticipated softness in grid automation and the impact of increased cost inflation from higher raw material prices and tariffs. In Electrical Solutions, we delivered mid-single-digit organic growth with continued adjusted operating margin expansion and strong core adjusted operating profit growth. Our segment unification efforts and our strategy to complete — compete collectively are driving out growth in key vertical markets, most notably evidenced by strong data center growth in first quarter.

From an operational standpoint, we continue to simplify our business to drive productivity and operating efficiencies, which we are confident will drive long-term margin expansion. In Utility Solutions, while grid automation sales were down on challenging prior year comparisons as anticipated, our grid infrastructure business returned to organic growth in the quarter. Transmission and substation markets remain strong as utility customers invest to interconnect new sources of low 10 generation on the grid. We delivered another quarter of double-digit growth across these markets in the quarter as our leading positions and premium brands position us well to capitalize on a growing funnel of project opportunities. In distribution markets, we are encouraged by recent order trends and are confident that we are emerging from the recent period of customer inventory normalization.

Before I turn it over to Bill to discuss the results and our outlook in more detail, I’d like to provide some opening comments on how we are positioning Hubbell to mitigate recent cost inflation and near-term macroeconomic uncertainty. Hubbell is a U.S.-centric manufacturing company with more than 90% of our sales in the U.S. and a largely U.S.-based manufacturing footprint. Our international sales are served primarily on a local-for-local basis. While recent raw materials, inflation and tariffs implemented in February and March drove a headwind in the first quarter, we have already implemented action to offset those impacts within 2025, and we are taking the actions necessary to offset the more recent impact of reciprocal tariffs. Cost inflation cycles are not new to Hubbell, we have successfully dealt with them before, and we have a playbook in place with several levers at our disposal to drive continued profitable growth under a range of scenarios.

From a market standpoint, while the macroeconomic environment has become more dynamic over the last several months, we see no net change to our prior near-term and long-term views. We believe the current environment warrants caution and continued proactive cost management with strong recent order trends and favorable end markets can support our forward growth expectations. Additionally, our markets are not only bolstered by near and long-term growth megatrends, but it also proven to be more resilient during periods of economic uncertainty. We are maintaining our full year 2025 outlook this morning and remain confident in our ability to achieve our financial and strategic commitments. With that, let me turn it over to Bill.

William Sperry: Thanks very much, Gerben. Good morning, everybody. I appreciate you taking time to be with us. We’re quite aware. It’s a busy morning. I’m going to start my comments on Page 4, and we’ll be using the slides that you hopefully found. So the first quarter results for Hubbell were strong performance from the Electrical segment, strong performance from great infrastructure, some headwinds from grid automation as they faced a very difficult prior year comparison. And I would say that first quarter performance sets itself up now for normal ramped-up seasonality and for us to deliver and support the full year target and expectations that we have. On the cost side, we had some incremental headwinds from higher raw material prices and tariffs.

We’re going to talk about tariffs and more robustly in a little bit. We’re lumping in raw material inflation just because we think about it as what we need to offset with price and productivity. And I think we’re going to provide slightly unique challenge for you all in our LIFO-based income statement. We are recognizing these cost increases as they happen. The FIFO reporters will be a quarter or so down the road before they start recognizing those costs. So we’re going to really be showing you a little bit of that gap, but we’ve got as Gerben highlighted actions to offset those and able to hold on to our initial targets. So on Page 4 on the left, when you see sales of $1.365 billion. The decrease largely driven by the divestiture of residential lighting quite flat, otherwise, where the growth we experienced in the Electrical segment as well as in grid infrastructure was essentially offset by the decline in grid automation as they faced a tougher compare.

We like to look at the sales sequentially as well, not just year-over-year and up 2% with strong orders, and we’ll talk more about that as we look forward to the balance of the year. But really those — the order book is supporting a strong seasonal ramp up. The second column, you see operating profit and you see the OP down to $264 million. Margins down 40 basis points. That includes 1 point of positive price and then some headwind from the material costs creating about a $10 million drag of price and productivity against material inflation, tariffs and other inflation. Absent these $10 million drag, you would have seen margins expand nicely. And I make that comment just because we’re going to be offsetting that drag in the second half of the year.

So the durable margins underlying that would have been up, and we think that’s a good sign. I’m going to now unpack performance by segment. And starting on Page 5, we’ll start with Utility Solutions. You see the sales of $857 million down 4% from prior year. That’s comprised of low single-digit growth on the infrastructure side and 15% contraction on grid automation. The infrastructure side accounts for about three-quarters of the segment and the markets are continuing in good shape in the transmission and substation side, double-digit growth by us. We feel very good about our strong positioning and differentiated solutions in fast-growing market here. That’s being driven by grid modernization and electrification trends. And that’s got nice momentum and has been growing strongly, expected to continue.

Distribution was down in the quarter. But again, importantly, sales and orders up sequentially. As Gerben had mentioned, the customer and channel inventory normalization has really been a nagging headwind in 2024 for the grid infrastructure business unit. Particularly for distribution products and telecom portion of enclosures. We would say that by the sequential and orders, we would say that normalization period by the end of the quarter here, we’ve reached it and the period of destocking is now behind us. We’re happy to say. So we’re looking forward to seeing kind of a book and build demand. The orders across all of grid infrastructure up double-digits and up sequentially, and that’s really a broad-based trend where we’re seeing that in all three areas of transmission, substation, distribution and telecom.

On the grid automation side, you see that business being down teens and that mid-teens that compares to a prior year comp of up 30%. So certainly a tough compare. The sales are flattening sequentially from the fourth quarter, and we’re seeing the large project roll-offs being backfilled by smaller projects and MRO activity. So I think we see grid automation now in kind of a steadier environment rather than being consistent downdraft. We think it’s nice, steady based on these smaller projects and MRO. The margins in utility, you see $180 million of operating profit, a decline of 80 basis points of margin this is really, where you see a lot of the price cost productivity headwind that we described. Our Utility segment has a higher mix of LIFO units than does our Electrical segment.

And so we’re seeing those costs hitting the P&L sooner here in the utility, which is dragging those margins down just a little bit. Talking about Electrical on Page 6. Another strong quarter for the Electrical segment. You see mid-single-digit growth when we net out the M&A impact of the divestiture of residential lighting. We have finally now lapped that so we won’t have to continue to torture you by kind of manually putting that out to make same-store sales comparisons for you. Strong margin expansion of 5% growth, 70 basis point improvement in margin. Likewise, if you pulled the lighting results out of the prior year to make it comparable, you’d see something closer to the double-digit growth. So a strong quarter for the segment. If we look at the 5% sales growth, data centers was our largest contributor.

We had double-digit growth in the balance of systems, which are products like our connectors and grounding product, wiring devices and the like. Good momentum in that space, healthy growth. And our PCX business strong growth there as well. So big contribution from data centers to the segment. Ex data center results are slightly more mixed, where on the light industrial side, which is where our Birdy brand is. We saw strong growth. We’re benefiting there from Mega projects, think of large industrial factories like chip plants as well as a general trend of industrial reshoring, helping in light industrial. On the heavy side, a little bit more mixed performance, where oil and gas was a good contributor on the non-res side, we saw some softness, which is consistent with the past few quarters.

We’re pleased that we got good results from a vertical market strategy. That led to some contributions from new product development as well as some customer conversions as our newly aligned sales force is proving to be effective in the marketplace. On the OP side, you see 70 basis points of margin expansion, 5% growth to $84 million of OP. And that’s driven really by the volume growth, efficiency gains from our compete collectively initiatives and some price cost productivity headwinds, little bit less impactful the utility as they have a higher FIFO mix, but nonetheless, a drag from that in the Electrical segment. We thought it would be helpful on Page 7 to break down the tariff exposure and to be clear that we’re including in the tariff exposure, the inflationary pressure on raw materials that those tariffs are influenced even if they’re not direct tariffs.

And we’re hoping that Page 7 helps, shine the light here. So you see, as Gerben had mentioned, a U.S. centric company, but with global supply chain, Mexico being about mid-teens of mix, China mid-single digits and the rest of the world less than five. We’ve find it most useful to separate the effects into two different buckets. And the first category on the left is really the effects in the first quarter from tariffs that were implemented in February and March, but also you see we’re including higher raw material costs. So even if we’re not paying tariff on student on steel/aluminum, those commodities have experienced inflation. And in the way we calculate this $135 million impact on 2025 from a cost perspective, about half of that is these — just these raw material costs and the balance being tariffs.

And we’ve got a set of initiatives that Gerben gave you a little insight to leading with price. We’ve been in communications with our customers with letters. We have enacted those price increases. They’re effective in mid-April, and we’ve now been taking orders at those new prices and the stick rate gives us confidence on this call, even though it’s a little early to let you know that we will neutralize that $135 million impact within calendar year 2025. The second column is the reciprocal tariffs that were enacted in April, we too will neutralize these effects using price and productivity levers. And those mitigation actions are underway. We’ve been in contact with our customers. Those price increases are not yet fully implemented. They’re expected to go in later this month.

And so we don’t know about stick rates as well. And so while we’re confident we’ll offset and neutralize these — it’s not fully clear yet that that will happen within calendar year ’25, given the LIFO lag and the fact that we’ll be recognizing these costs immediately. So to see when we get to the outlook page, we’ve given you a little bit of a sensitivity. We’re targeting to get all of this offset and neutralized within calendar year. But it’s possible it takes until the first quarter of next year, and we’ll certainly keep you updated as those impacts become a little more clear. So our outlook is on Page 8 and you see that we are maintaining our 2025 adjusted EPS outlook range. And that involves organic growth of 6% to 8%. We believe that the markets are intact.

And so about half of that or 3% to 4%, we think is going to come from volume and the balance of 3% to 4% will be coming from price. And so that price — those price actions, again, confident that we’ll be offsetting that first phase of the first quarter tariffs and inflation on materials. And you can see that illustrated by the red and green bars offsetting each other, getting back to the original range. The second set of reciprocals. We’re targeting neutral, but we wanted to highlight a $0.50 sensitivity just in case the LIFO accounting recognizes a little more cost before the price can hit, and we’ll be able to update you certainly next quarter on how that’s going. So the guidance is intact. Free cash flow, you saw on the opening page, a little bit down quarter-over-quarter, but certainly in line to hit our target of 90% or greater of net income on the free cash flow.

You’ll see on the right some comments on modeling considerations that we can talk about as much of that in Q&A as you want. But essentially, we’re anticipating a ramp, and that’s going to allow us to get some growth — good growth in the second quarter. We wanted to end — that’s obviously, guidance is around ’25. We wanted to end on Page 9 with some comments that maybe extend beyond ’25 into ’26 and beyond and I wanted to talk about the balance sheet, which we think is in great shape, it’s very poised to support an active level of investment as well as returns to shareholders. You can see in the graph, we’re depicting for the three year period of ’25 to ’27 about $3.5 billion of operating cash flow, burden that with CapEx gets to about $3 billion of free cash flow with dividends and anti-dilutive share repurchases.

We get to about $2 billion of cash generation, that excludes and ignores the borrowing capacity inherent in the balance sheet, which would more than double that number. And our bias is to deploy that into acquisitions. We think acquisitions give us the best way to improve the depth and breadth of our product positioning continue to deepen our importance to our customers, add critical technologies as well as provide very attractive rates of return on capital. But we also have flexibility on the share repurchase side. And just to remind everybody, our authorization on that side had been increased earlier this year, order of magnitude of $600 million of availability. We did buy $125 million worth of shares in Q1. We believe at attractive valuations and certainly, the share repurchase lever is available to us as you can see the balance sheet and capital deployment here.

I wanted Gerben to comment on the left-hand side, certainly, the T&D core business is critical both to us achieving our ’25 guide, but also to success beyond that. So ask Gerben to comment on that, please.

Gerben Bakker: Great. Thanks, Bill. And before we turn the call over to Q&A, let me provide some more context on T&D trends as we are beginning to see evidence of acceleration in areas of the portfolio, which face customer inventory normalization throughout 2024. Grid infrastructure orders were up double-digits year-over-year in the first quarter and up solidly versus the fourth quarter and order trends were strong across each of the end markets. More importantly, underlying end market dynamics are strong and forward outlooks for major customers have recently increased. On average, over the past six months, multi-year capital plans from a representative group of our top investor-owned utility customers have revised upwards by approximately 10% from prior multi-year plans.

As we have previously communicated, we believe T&D markets are at the early stages of a long-term investment cycle, underpinned by secular trends in grid modernization and electrification. We are confident that we are emerging from the recent period of customer inventory normalization with leading positions, solutions and service levels that will enable Hubbell to effectively capitalize on this visible long-term opportunity. And to conclude this morning’s prepared remarks and turning my comments back to all of Hubbell, we are confident in our ability to execute through near-term uncertainties and deliver on our financial commitments in 2025. We are focused as a management team to drive the needed actions to navigate this dynamic environment, and we view it as our obligation to manage the short term.

We have a demonstrated track record over the last several years of executing effectively through a wide range of macroeconomic and inflationary environments, and we will continue to do so moving forward. But we are also not losing sight of the long-term opportunities ahead of us, and we are increasingly confident that our utility and electrical customers will do significantly more business with Hubbell over the next several years. This confidence is underpinned by our unique leading positions in markets supported by visible megatrends as well as recent customer insights and order trends. We anticipate that our attractive long-term growth outlook, combined with structural opportunities in our operating model and capital deployment levels will continue to drive consistent shareholder value creation.

With that, let me turn the call over to Q&A.

Operator: Thank you. [Operator Instructions]. Our first question comes from Jeffrey Sprague with Vertical Research. Your line is open.

Jeffrey Sprague: Hey, thank you. good morning everyone. Maybe just to start on guidance, if we could. Coincidentally, your guide range is $0.50 right, and you’re talking about this $0.50 kind of sensitivity. Just to be totally crystal clear, you’re suggesting a negative outcome here relative to your plan is a year that looks like $16.85, $17.35. $0.50 on the top and bottom.

Gerben Bakker: Yes, I think that’s correct, Jeff.

Jeffrey Sprague: Okay. And then just on Q2, Bill, it’d be really great if you could give us some additional help here. Obviously, you don’t guide quarters. Maybe this is the exception to the rule this quarter with all this LIFO hit likely to be coming through, right, and your price actions delaying. So you told us the top line will be strong a seasonal lift. But just help us think about really what’s going to happen with the margins and sort of the cost mitigation in the quarter?

William Sperry : Yes. So without giving guidance, I do think we can give you some insights that we have, Jeff, that hopefully would be helpful. So on the top line, a typical seasonal sequential would be in the high-single digits. And certainly, we’ll have some price being pulled in there. And so I think, thinking of getting sales growth year-over-year in that mid-single digit range is certainly a valid expectation. I think to your point on the LIFO lag, we’re anticipating an order of magnitude of $20-ish million. Again, that’s going into a recovery bucket in the second half. But the timing of that, we would have $10 million of that in the first quarter and $20 million in the second, Jeff. So I think those are the kind of primary drivers in the quarter.

Gerben Bakker: And Jeff, if I may make a comment back to your first question, I think you’re correct to interpret the both sides of the guidance to be down $0.50. I would say, though, that at this point, is merely a sensitivity analysis rather than a guide. And the actions that we have in place are to neutralize this. And there’s a lot of uncertainty still even on the tariffs, right? There’s a lot of discussions about how these tariffs are going to be pulled back, we’re starting to action. We’re early in this action in the market. I would say, in announcing that we’re going to go, but a lot can change here. And this is why we wanted to merely provide some sensitivity around it, that we’ll continue to update you on rather than this should be assumed in the guide at this point.

Jeffrey Sprague: Great. I appreciate that. And then Gerben, just a follow-up on how you’re thinking about utilities. Would you expect — you talked about their budgets, right, their budgets will be what they’ll anomaly be. But do you expect just then a shift within their budgets between price and volume? Or are they determined volumetrically to get certain things done that would suggest maybe there’s some upside here, actually, as they need the volume, and then we’ll have to deal with the price because it is what it is?

Gerben Bakker: Yes, yes. And it’s probably a little of both, Jeff, because that’s indeed the tension that you have, right? If you have budgets, you have CapEx budgets are you limited by the spend and then you’re going to just buy less to do it. I would say, on the one hand, there’s pressure to do the work, both on the need for hardening, load growth to support. So I think that puts attention to it. The prices are higher, you have to spend more to still get the same work done. But I’m sure there will be some decisions made. The other thing that you tell to the customer, because they can shift to work between CapEx and OEM, they can focus on grid hardening versus expansion. So I would say, it’s really hard to call truthfully. But we feel good that utilities are spending more budgets are going up.

And that’s just good for us, right? And then could it be better for us, perhaps, but we feel pretty good about utility. It’s resilient. And even in a more challenged macroeconomic environment, history we have proven that utilities tend to be more resilient.

Jeffrey Sprague: Great, thank you. I will leave it there.

Operator: One moment for our next question. Our next question comes from Charles Tusa with JPMorgan. Your line is open.

Charles Stephen Tusa: Hey, good morning.

Gerben Bakker: Good morning, Steve.

Charles Stephen Tusa: So I think I’ve got a problem with like my auto fill on these registrations this morning at several different names called out. The pricing in 2Q, like how do you expect that to kind of feather into 2Q on the way to it being half for the year on an organic basis?

Daniel Innamorato: Yes. I think we’re expecting nice sequential price realization based on the actions we implemented. I think it will probably come a little bit quicker in electrical, just given there’s a shorter backlog there, and it’s a little bit more book and ship. So I think you’ll see a couple of points of incremental contribution from 1Q to 2Q on that.

Charles Stephen Tusa: And then I assume with your commentary around the sequential increase that you’re seeing a pretty good April. Any signs of prebuys or pull forwards that you guys have seen in your shorter cycle business?

William Sperry: Yes. So I think it’s a good question. When we talk to our customers, meaning channel customers, everybody’s got anecdotes, where it’s happened here or there. But no one sees it as a trend. When we talk to end customers, they tell us they’re not doing it. When we start slicing and dicing SKU data, you see some volatility. So I think, Steve, it wouldn’t be logical to assume there has to be some happening, but I wouldn’t say we see evidence that it’s a trend or affecting the trend. So that’s — but logic would say there has to be some people doing it.

Charles Stephen Tusa: And just one last thing back to Jeff’s point. So basically, what you’re doing with the sensitivity is just saying, but you’re just identifying that the difference between the high and the low end of the range is the tariff dynamic. But is that basically what you’re saying?

William Sperry: No. We’re trying to say that the second — the reciprocal tariffs we know we’re going to offset and neutralize. The question is for guidance, can we get all of it into 2025, and we think we can. So we’re describing that as a target. We just have no — we just thought it was responsible to say that with the LIFO lag, there just could be a sensitivity but we’re targeting to not have it. And we just wanted to introduce that to you. That’s all.

Charles Stephen Tusa: Right. So the range reflects fundamentals and if the fundamentals are weaker and they’re at the low end of the range and you can’t cover this tariff, then that’s downside to the low end of the range effectively?

William Sperry: Yes, those two things, both of those happen, you’d be below, yes.

Charles Stephen Tusa: Yes, okay. Great, thanks a lot guys.

Operator: One moment for our next question. Our next question comes from Nigel Coe with Wolfe Research. Your line is open.

Nigel Coe: Thanks guys. So just wanted to maybe home in on the second quarter. if we’ve taken the $20 million of PTP headwinds in 2Q, does that suggest that EPS is sort of flat to slightly down year-over-year, Bill?

William Sperry: I think you’re going to be — if all that played out, you’d be in a comparable range. I think, yes.

Nigel Coe: So flattish overall, yes, okay. And then how do you think about price elasticity? And maybe just talking about that into kind of the feedback from the customers on the price increases announced so far. Some companies are factored in elasticity. I don’t think you are, but just curious kind of what the reaction has been and then when you think about the mix between surcharging versus price increases, I think historically, you’ve gone with price increases, but any sort of merit on surcharging just given the volatility in these tariffs?

Gerben Bakker: Yes, maybe I’ll start, Bill fill in. I would say, for the first round of tariff. This has been much more inflationary across the broader portfolio, while we indicated more than half of it is actually the commodities, steel, copper, aluminum, which is broadly used. And we provide more broad — we implement more broad pricing actions and the early evidence of that in its early as in a couple of weeks now. Looking at the order rate is that, that sticking pretty good, I would say, low elasticity in that. The second round of tariffs, which is all I’d say, primarily China driven that then becomes more targeted to certain product lines. And I’d say in certain product lines, we’re probably slightly disadvantaged and other product lines, we are slightly advantaged.

But there, too and we’re not only taking price increases. We’re doing a lot of work negotiating with suppliers, realigning supply chains where we can, other cost actions to offset and then, of course, the magnitude of these tariffs pricing as well. So, we’re still planning for this, and we expect to get the price, but I’d say this one is a little more targeted to certain product line. And so could there be some elasticity in certain product line, there could be, and we’re thinking through that, I’d say. But I’d say, overall, we’re not disadvantaged in the broad picture to our peers, we believe.

William Sperry: So I would answer, Nigel, that we did factor in price elasticity into this guide. And as Gerben said, we’re not expecting a lot in the first bucket. Second bucket does contemplate some and that’s what’s embedded in driving some of the sensitivity. As far as your surcharging point, I think you’re right to point out that we have stayed away from that in the past and relied on price increases. One of the reasons we like and I think we’d stick with that. And a good example would be we’re facing higher steel aluminum cost, even though we’re not paying tariffs. And that’s — so in a surcharge, there’s not a tariff there, so you wouldn’t get it versus can you just price for that, things like freight inflation, wage inflation, you can just pick up other drivers. And so I think we’ve thought of it more in the price increase than in the surcharge — yes.

Nigel Coe: And just one quick follow-up there. Gerben, you mentioned you don’t think you’re disadvantaged. I would have thought the other way around actually. So I’m just curious, especially in the electrical SKUs. I would think you’re still seeing a lot of imported products and some of the more, I don’t know, lower value commoditized SKUs. So I’m just curious, if you see opportunity to gain share from some of that imported products?

Gerben Bakker: Yes, I’d say broadly, probably not, which certainly, we know some product lines where we are. And that’s also something we’re considering in this whole — we’re thinking around how to mitigate this, not only by the specific product line, but broadly by action across the portfolio. I wouldn’t say broadly as a company, I’d say we’re relatively in line with others what our exposure is to offshore supply chains, but there’s pockets of advantage in the chain.

Nigel Coe: Okay, thanks.

Operator: One moment for our next question. Our next question comes from Chris Snyder with Morgan Stanley. Your line is open.

Christopher Snyder: Thank you. I just wanted to ask about the price cost dynamics. So it seems like in the first half of the year, the company will be about $30 million price cost negative. And it seems like you guys see a chance to be price cost neutral for the year, if 0 of that $0.50 sensitivity comes through. So I mean, is that implying that you guys are actually price/cost positive in the back half to offset the negative $30 million in the first half? And what would that mean about the exit rates as we kind of think about that into ’26? Thank you.

William Sperry: Yes, Chris, you’ve got that correct. We’re anticipating having a surplus that offsets the deficit in the second half versus the first. And as you’ve seen us come through inflationary environments before as the LIFO reporter, you tend to have this lag period, where it’s in your — it’s a headwind for couple of quarters. And then I think what you’re suggesting is you get the advantage of a tailwind as that moderates out, and we would agree with that analysis.

Christopher Snyder: Thank you. I appreciate that. I guess maybe just on the second point, sometimes I feel like there’s confusion in the market around, who you guys are competing against. So could you just maybe kind of talk about, who are the main competitors, whether it’s utility T&D, I guess, most specifically, but anything else is a call out on just, who is the competitive base here?

William Sperry: Yes. I would say, Chris, in terms of Utility T&D, the Cooper division of Eaton is a head-to-head competitor, Thomas & Betts, which is now inside of ABB, which is a direct competitor. And those are the big private — sorry, public company players, a private company in Chicago called MacLean Power Systems. And I would say those are the main T&D competitors.

Christopher Snyder: Thank you. I appreciate that.

Operator: One moment for our next question. Our next question comes from Julian Mitchell of Barclays. Your line is open.

Julian Mitchell: Hi, good morning. I just wanted to push a little bit more on the sort of volume assumption dialed into the organic sales guide for the year. So it looks like on Slide 8, you’ve got sort of 3% plus volumes growth dialed in for the year. And it seems like the first half is sort of guided for flattish volume, down a bit Q1, up a bit Q2. So it’s a pretty strong volume growth in the second half. And so just maybe help us understand that a little bit. There is some elasticity aspect that you mentioned already, but also easier comps. So maybe help us understand the confidence in that volume acceleration, please.

William Sperry: Yes, I think you’re pointing out, Julian, the intersection between kind of sequential and VPY analysis, right? So if we start with the sequential and look at orders, we think that kind of indicates, where the volume will be and when you do it again. So first of all, we agree with your first half analysis that you’re talking about. And so you’ve got to get double the 3% to 4% basically in the second half. And it’s driven by strong order book supporting strong seasonal ramp and having easier comps that allow that sort of mid- to higher single-digit growth rates in the back half.

Julian Mitchell: That’s helpful. Thank you. And then just my second one…

William Sperry: Yes, maybe to just to — there are a couple of inflection points that really help this too, right? So the distribution side of T&D has returned to growth. So then they really start to help. And as well, the absence, and I hate to bring it up again, but the telecom enclosure declines turning from contraction to growth. So there’s a couple of products in there that are inflecting up that also just help what feels like a back half loaded, jeez, I might be skeptical of that when you just turn it into math, you realize that’s going to be what happens.

Julian Mitchell: That’s great. Thank you. And just a follow-up around the adjusted sort of margin outlook. So I think in the sort of prior or initial guide construct for the year. It looked like you had sort of maybe flat, slightly up operating margin dialed into the guide midpoint. Is it now sort of down, call it, I know a few 10s of basis points for the year kind of similar to the Q1 margin progression? And any sort of big divergence across the two segments you’d highlight on margins?

William Sperry : Yes. So you’re right that in the original guide, it was up a little bit. And what happens when you add price across in the 3% to 4% range, but hold OP dollars flat. In other words, if all you do is capture dollars back through price, it does create a slightly dilutive effect. And but the underlying gross product line profitability is kind of the same. But I think you’re right to point out that causes a slight headwind to the OP margins, when you do that.

Julian Mitchell: Great. Thank you.

Operator: One moment for our next question. Our next question comes from Tommy Moll with Stephens. Your line is open.

Tommy Moll: Good morning and thank you for taking my questions.

Gerben Bakker: Good morning, Tommy.

Tommy Moll: I appreciated the insight in commentary on the long range outlook for the big IOU budget. And to some extent, the message there could be characterized as reaffirming what we’ve all kind of known and heard from you for a while. But my question today is whether anything has changed or whether you’re learning anything. So ideas that come to mind would just be — what are you hearing on the relative priorities across transmission versus distribution versus generation even? What are you hearing about the step-ups into the latter part of the decade? Are we pulling forward some of the dollars, pushing out some of the dollars, I think it’s the five year range you gave. So there’s some flex there? Or is anything else that does seem different now, whether better or worse?

Gerben Bakker: Yes, maybe I’ll start and Bill, feel free to chime in. But I would say it’s definitely encouraging that the budgets are going up. And again, what we provided for you was then large I, but they represent a good portion and they’re pretty spread geographically. So we believe this is representative of what we’re seeing. Certainly, as we’ve communicated, I’d say transmission and substation, particularly strong. We continue to see that bodes with the interconnections that have been made as well as new substations that are supporting data centers and other load that’s coming up. But distribution is, in our view, also good. You see hardening projects within that step-up happening as well. As far as the timing and what we tend to see with these, but — and we saw this in transmission spend as well that you see a few years, where it shows up and then it kind of flattens and you even see it come down.

And our experience in transmission at least was that as these budgets get revised every few years, that peak tends to — if they have to move to the right so that should, in essence, don’t see that decline in the transmission, actually we started to see this is in, I think 2012 or something, it still continued to ramp this long. And it really shows the need to invest in this infrastructure. So we’re encouraged that it’s elevated, we’re encouraging that they’re increasing it. And the other thing I would say, whether they shift that a little bit between one and the other, our portfolio broadly supports the spend wherever they may take it. So I think we’re well positioned either way.

Tommy Moll: Thank you, Gerben. And Bill, I wanted to talk about the M&A environment here. You reminded us of the upsized budget that you’ve established, I think at the Investor Day, last Investor Day. So a lot of dollars to deploy there. Your preference is clearly M&A. But in this particular environment, I’m just curious what your discussions look like given the uncertainty?

William Sperry : Yes. It’s interesting, Tommy. The — I’d say the pipeline is reasonably active, and we continue to pursue actively a number of situations. Each one is different. And there is an interesting question of these long-term trends, which as you said, we’re just reminding each other of versus is there some general volatility around higher interest rates and potential inflation and the news of a first quarter contraction in GDP and we’re not sort of feeling that uncertainty. I don’t see — it hasn’t been creating any chill in our type of M&A market. I think maybe large-scale public to public MOE type stuff, it probably does. But in sort of these kind of things that we’re looking at. I think, Tommy, a lot of conversations are continuing actually.

Tommy Moll: Great. Thank you, Bill. I’ll turn it back.

Operator: One moment for our next question. Our next question comes from Joe O’Dea with Wells Fargo. Your line is open.

Joe O’Dea: Hi, good morning. I wanted to start on kind of first half, second half organic growth dynamic just in terms of — it seems like for the total company, that might be kind of around 10% growth in the back half of the year. But when you see a little bit more of the tariff pressure tied to the utility side. Just any color on how we think about that between the segments and whether that would be low-double digits utility in the back half and high-single digits electrical or if the spread might be wider based on that tariff exposure.

William Sperry: Yes. I think the math you’re doing would imply a ramp-up in the second half, certainly, Joe, and part of that’s again price realization kicking in. And again, that takes a little bit longer on the utility side, just given the backlog. I wouldn’t say that tariff exposure is more utility weighted, though it’s probably a little bit more electrical weighted when you look at it that way. So I think both sides will sort of see a similar kind of price contribution.

Joe O’Dea: And therefore, somewhat similar back half of the year organic growth rates based on the framework you have?

William Sperry: Yes. I mean, again, volume will be a little bit different at that sort of ramps up as utility progresses throughout the year.

Joe O’Dea: Okay. Got it. And then could you expand a little on the sourcing from China in terms of — I don’t know, if it includes any raws or if it’s all components, what kind of verticals you would be sort of sourcing in terms of the end markets that you serve and where China would be a good source today. And then what you’re evaluating in terms of that mid-single digit exposure and how you think about that moving forward in alternatives?

Gerben Bakker: Yes, Joe, and I think glad you kind of asked about how we think about it going forward. So it’s worth noting probably that that we’ve cut our exposure to China in about half over the last several years. And that’s been a function of a couple of businesses that we sold and as well some onshoring or reshoring supply chain kind of redundancy work that we have done. And I wouldn’t be surprised as that exposure continues to get managed downward. Right now, there’s — we get some components. There’s not a lot of PFR, but mostly more components and things coming in, we can figure out, I think over time kind of diversify that supply chain ultimately.

William Sperry: Yes. So maybe the only thing I’d add, it’s mostly components and then we do some manufacturing in China as well. So the actions again that we’re taking is negotiating with suppliers right now. It’s cost sharing. We’re working with some of our supplier partners, who are moving the production out of China to other areas. We’ve moved some of the stores, in particular, during COVID. We worked a lot on resiliency back then for a different reason to create multiple suppliers, and we’re doing work right now to move more of that volume to where it’s most beneficial. So there’s plenty of action taken. But again, reminding you that it’s at the end, still a very small percentage of our overall cost of goods sold for manageable.

Joe O’Dea: Thank you.

Operator: One moment for our next question. Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

Nicole DeBlase: Yes, thanks. Good morning guys.

Gerben Bakker: Good morning, Nicole.

William Sperry: Good morning, Nicole.

Nicole DeBlase: Just kind of piggybacking on, I think it was Julian’s question earlier about margins for the full business and you guys kind of acknowledge like probably down year-on-year. Is that the case in both segments, because electrical still saw a little bit of margin expansion in the first quarter despite the tariff headwinds, curious if that can kind of continue throughout the year? Thank you.

Gerben Bakker: Yes. I think, Nicole, because the — you’re right to say underlying the margins going up, but this effect of having price that’s basically just offsetting fast is what would create the headwind. And I think electrical would experience that as well.

Nicole DeBlase: Okay. Understood. And then I know it’s a small part of the business, but obviously, pretty volatile in recent years. What are you guys seeing in telecom now? Has that actually improved to growth? Or is that something that you expect to see as we kind of move through the year?

William Sperry : Yes. We’re seeing the sales decline flattened and the order book growing. And the compare is getting easier to grow against. And so that actually, on the call feel like — it feels like it’s inflected to us.

Nicole DeBlase: Thank you. I’ll pass it on.

Operator: One moment for our next question. Next question comes from Brett Linzey with Mizuho. Your line is open.

Brett Linzey: Hey, good morning all.

Gerben Bakker: Good morning.

Brett Linzey: I wanted to come back to grid automation. So down 15%, I guess, how did that track versus the internal expectation and then implicitly, the utility meters business was down much more than that. You had guided that business down high singles for the year. How has the outlook changed relative to the original expectation?

William Sperry : Yes. So I’d say the quarter for that was softer than we had anticipated. But I do think there’s encouraging signs of smaller project wins and the MRO portion of the business is starting to create, Brett, a floor where they can kind of operate at a level now and not be, for example, some kind of falling knife. And so we’re actually encouraged as thinking about the sequential is actually flattening now and being able to kind of run it from here, but a little more modest probably than we originally thought as the year started.

Gerben Bakker: Yes. Maybe the additional context on that is, as Bill said, a little softer, but offset by stronger T&D than we had initially anticipated. And both of these are embedded in our guide for the full-year.

Brett Linzey: All right. Yes, that’s helpful. And then just one more on utility distributions on the strong orders up double-digits. I guess are there any other indicators or anecdotes from large utilities or inventory data from distributors that gives you more confidence that the destocking has really run its course here?

Gerben Bakker: Yes, I would say all the above, certainly dialogue with distributor customers, dialogue with end customers it does suggest that inventories are much more in line with originally targeted. I mean it’s a slightly — the topic has some tenant calls, there’s lots of SKUs, lots of customers, lots of geographies. So there could be some pocket in a geography with a customer of a SKU, where they still want to work it down. But we would argue that you won’t see it. We’ll be able to grow now to the extent and we just those little small things will be not visible, and we feel we’re — I mean, I know we’ve been begging your patients broadly for the last five quarters or so, but we think we’re here now and ready to grow D, and that’s fantastic news.

Brett Linzey: Appreciate the insight.

Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to Dan for any closing remarks.

Daniel Innamorato: Great. Thanks, operator. Thanks everybody for joining us. I’ll be around all day for follow-ups.

Operator: Thank you. Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.