Stock Story -
Electrical and electronic products company Hubbell (NYSE:HUBB) fell short of analysts' expectations in Q2 CY2024, with revenue up 6.3% year on year to $1.45 billion. It made a non-GAAP profit of $4.37 per share, improving from its profit of $4.07 per share in the same quarter last year.
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Hubbell (HUBB) Q2 CY2024 Highlights:
- Revenue: $1.45 billion vs analyst estimates of $1.48 billion (2.1% miss)
- EPS (non-GAAP): $4.37 vs analyst estimates of $4.21 (3.7% beat)
- Raised full year guidance for EPS (non-GAAP)
- Gross Margin (GAAP): 35%, down from 36.5% in the same quarter last year
- Free Cash Flow of $239.6 million, up from $51.9 million in the previous quarter
- Organic Revenue rose 2% year on year (5.8% in the same quarter last year) (miss vs expectations)
- Market Capitalization: $19.7 billion
A respected player in the electrical segment, Hubbell (NYSE:HUBB) manufactures electronic products for the construction, industrial, utility, and telecommunications markets.
Electrical SystemsLike many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Unfortunately, Hubbell's 3.9% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Hubbell's annualized revenue growth of 10.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can better understand the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Hubbell's organic revenue averaged 7.6% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.
This quarter, Hubbell's revenue grew 6.3% year on year to $1.45 billion, missing Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 7.9% over the next 12 months, an acceleration from this quarter.
Operating MarginHubbell has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.6%.
Analyzing the trend in its profitability, Hubbell's annual operating margin rose by 4.9 percentage points over the last five years, showing its efficiency has improved.
In Q2, Hubbell generated an operating profit margin of 20.7%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Hubbell's EPS grew at a remarkable 14.2% compounded annual growth rate over the last five years, higher than its 3.9% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Hubbell's earnings quality to better understand the drivers of its performance. As we mentioned earlier, Hubbell's operating margin was flat this quarter but expanded by 4.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Hubbell, its two-year annual EPS growth of 30.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Hubbell reported EPS at $4.37, up from $4.07 in the same quarter last year. This print beat analysts' estimates by 3.7%. Over the next 12 months, Wall Street expects Hubbell to grow its earnings. Analysts are projecting its EPS of $15.61 in the last year to climb by 7.6% to $16.79.
Key Takeaways from Hubbell's Q2 Results It was good to see Hubbell beat analysts' EPS expectations this quarter and raise its full year EPS guidance. On the other hand, its revenue unfortunately missed and its organic revenue fell short Wall Street's estimates. Overall, this was a mixed quarter for Hubbell. The stock remained flat at $366.89 immediately after reporting.
