Operating income was $57.3 million, 24% below 2008 resulting in operating income as a percent of net sales of 9.8%. The results for the first quarter of 2009 include about $0.04 per diluted share for expenses related to workforce reductions. Free cash flow (defined as cash flow from operations less capital expenditures) was $38.6 million in the first quarter of 2009 versus $20.5 million reported in 2008.
Operations Review:
Timothy H. Powers, chairman, president, and chief executive officer stated “Our first quarter performance was reflective of the recessionary conditions that persist in our markets. Earlier this year, we outlined our expectations that end markets in 2009 would be down in the low to mid teens range. That outlook proved itself out in the first quarter. Our overall reported sales were down 7%; however, volume declined 12% adjusting for the favorable impact of acquisitions, price realization and storm related shipments as well as the adverse effect of foreign exchange. We have continued to adjust our employment levels to match the lower market demand. We took actions in the first quarter to reduce salaried and hourly headcount which is in addition to workforce reductions we made in the fourth quarter. We also have managed production costs in our plants by reducing the length of work weeks at some locations.”
Powers added “The economic environment was generally consistent with our expectations. The global recession and ongoing credit market disruption have created significant challenges. In our Electrical segment, the U.S. non-residential construction and industrial maintenance and repair markets declined rapidly while the residential market continued to be very weak. In our Power segment, excluding storms, growth in demand for transmission products slowed while spending on distribution products declined low double-digits, in line with our expectations.”
Segment Review:
The comments and year over year percentages in this segment review are based on first quarter results in 2009 and 2008.
Electrical segment net sales decreased 14% year-over-year due to broad-based weakness with the notable exception of high voltage test equipment. In addition, the acquisition of Varon in December of 2008 and price realization each contributed 2% to net sales in the first quarter of 2009 offset by foreign currency headwinds. Compared to the first quarter of 2008, operating income decreased 45% to $27.7 million, or 6.9% of net sales. The decrease in profitability and margin was due to lower volume, charges related to workforce actions and inventory reductions. These decreases were partially offset by productivity improvements and price realization.
Hubbell’s Power segment reported a 16% increase in sales compared to the first quarter of 2008 due to the impact of acquisitions, higher storm related shipments and price realization. Acquisitions and storms added about 14% and 7%, respectively, to net sales in the first quarter of 2009. In addition, price realization added about 4% to net sales. Operating income increased 17% to $29.6 million compared to $25.3 million reported in the first quarter of 2008 primarily due to price realization and productivity improvements. Operating margins increased slightly in the first quarter of 2009 versus 2008 as the net benefit of price realization and productivity improvements above cost increases were partially offset by an unfavorable product mix and the inclusion of acquisitions.
Summary & Outlook:
Powers concluded “Hubbell’s end markets are creating significant challenges to our financial performance. We expect those conditions to continue throughout the year and the lower volume levels will continue to compress our margins. However, we have taken decisive actions to lower our employment levels given the operating environment. Our efforts on productivity continue with renewed energy and creativity both outwardly as we work with suppliers and customers and inwardly as we continue to apply lean methodology. We continue to focus on our strong balance sheet and liquidity position and will take advantage of acquisition opportunities where the fit and valuation are compelling. We look forward to serving our key markets with a leaner, stronger Hubbell.”
