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Hubbell Inc. (NYSE:HUBB)
Q2 2019 Earnings Call
Jul 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Prince and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2019 results call. [Operator Instructions]. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you, Mr. Dan Innamorato, you may take it from here.

Dan Innamorato -- Director of Investor Relations

Thank you, operator. Good morning, everyone, and thank you for joining us. I'm joined today by our Chairman and CEO, Dave Nord, and our Executive Vice President and CFO, Bill Sperry. Hubbell announced its second quarter results for 2019 this morning. The press release and earnings slide materials have been posted to the Investors Section of our website at www.hubbell.com. Please note that our comments this morning may include statements related to the expected future results of our company, and our forward looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. In addition, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and earnings slide materials.

Now, let me turn the call over to Dave.

David G. Nord -- Chairman and Chief Executive Officer

Okay. Thanks Dan. Good morning everybody, and thanks for joining us this morning. Appreciate the time. We know it's a busy day. You can see from our press release that it was another quarter of strong earnings growth, and particularly strong free cash flow generation. Continue to feel confident about our market position and our ability to deliver differentiated results over the short and long term.

Now, before I get into the results for the quarter, and a little more color on that. Obviously, a few things to update since the last time, we spoke to you a quarter ago, particularly organizationally. First, you heard Dan leading off this call. As many of you know, Maria Lee had another opportunity outside of Hubbell, so she moved on. But, one of many things that she accomplished was building a good team. We're fortunate that we had Dan join our team a little over a year ago. So, he's had a year to get very familiar with Hubbell, and all that we have to offer, and I know some of you have had interacted with him. and he's obviously had some great training in the market before coming here. So, we're glad to have him on the team. We also named a new VP General Counsel, Katie Lane. Katie is also evidence of the strong team that we've built over the last 14, 15 years. She joined us a little over 14 years ago, and had worked in a number of positions in the organization, including as General Counsel for the commercial industrial business, and then came up as the Assistant General Counsel. So, we welcome Katie into the Senior Management team here.

More significantly, you noted that we promoted Gerben Bakker to President and Chief Operating Officer. Obviously, Gerben has done a great job leading our power segment over the last four years and as I tell the team regularly, that reward for success is higher expectations, and so we took Gerben into a role to help us drive some of the things that we are really starting to get traction on around our operating performance.

Certainly, his experience and the results that he's demonstrated within the Power segment are going to be very valuable at the Hubbell level. His responsibilities include oversight of the four group Presidents, as well as our operations more broadly. Some of you have met our VP of Operations, Susan Huppertz and her role hasn't changed. She remains focused on our footprint optimization initiative, where we're making strong progress and as I told Susan, she now has another strong advocate in the senior ranks to support what we're doing there.

Obviously, Gerben moving out of Power segment was big shoes to fill, and so we appointed Allan Connolly to replace Gerben as the President of the Power segment. As many of you recall, Allan joined us as part of the Aclara acquisition and he played an instrumental role in building Aclara up, and executing on their strategy over the four years prior to our acquisition, as well as in our successful integration and performance over the past year.

We're excited for Allan taking on a broader role at Hubbell, and continue executing on our T&D strategy, where you'll see from the ongoing strong performance here, we continue to build on that strong competitive position. So, a lot happening within the organization, a lot of good things, all setting us up for continued success in the future.

So, let me turn to the second quarter now and some of the highlights from my perspective, and I'll start on page three on the slide deck. Obviously, our T&D stands out as being stronger than our initial expectations with acceleration and demand as the years progressed and strong performance. The electrical product side, things are a little more mixed with some markets performing strongly, other softer, which we'll talk about specifically in a couple of slides. Certainly on the margin front, continue to actively manage price cost across the portfolio, and navigating effectively through somewhat uncertain environment. Free cash flow remains a critical aspect of our story, and we're tracking above our initial expectations for 2019, driven by continued working capital improvement, particularly around inventory reduction and we continue to make strong progress on this initiative.

We've ramped up our footprint consolidation efforts in the second quarter, with more to come in the second half. We laid out at the beginning of the year, it is a multi year story and we're anticipating driving visible earnings contribution and free cash flow generation, regardless of the macro environment.

We also continue to aggressively improve our operational capabilities, talent and processes. Finally, our strong first half results position us well to tighten our full year EPS expectations. We're slightly more cautious around top line trends, at least in our electrical business than we might have been a quarter ago, but we have certainly have solid visibility into continued strength in our Power business in the second half, and we're executing well on margins across the portfolio. So, this gives us confidence to tighten our full year commitments, so we remain confident in our ability to deliver on them.

Just a couple of other -- I'd like to add a couple of other operating accomplishments in the quarter. We won four of 12 annual awards given out by a key distributor partner. The gas business won an award for market development excellence, lighting won an award for service excellence, and power won two regional awards for a supplier of the year. That's just with one key distributor partner.

Power won the Diamond Excellence Award from a key customer for their support during the worst storm in that customer's history. Construction and energy team won an award for exceptional efforts with the United Way in raising donations, some of our efforts in community service and the commercial industrial new product launches position us as the supplier of choice in the key entertainment vertical.

So, just a couple of key highlights, obviously off to a good start, but let me turn it over to Bill and he can give you a little more detailed color on the results. Bill?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you Dave. Good morning everybody. Good to be with you all. I'll start on page four, and echo some of Dave's comments, strong financial performance by Hubbell in the quarter, evidenced by double digit growth in earnings and double digit growth in free cash flow generation year-to-date. I think, the two most standout drivers of underlying performance were number one, solid execution, and number two strengthen balance in the product portfolio. On the execution side, you saw a really good price cost management, which allowed us and led to expanded operating profit margins. You saw increased investment in restructuring, which we think sets us up for margin expansion next year and beyond, and you saw strong inventory management, which really helps underlying some of what Dave said about the organizational design changes, as well as what can really help us get the free cash flow generating.

The strength and balance in the portfolio was really evidenced, and we'll talk about some of the markets on the next page, but you saw some weak oil, but strong gas, that strong gas is the result of some business development work that we've done over the last several years, where we've really built an impressive meter business, an attractive market that we didn't have before. Where commercial might have had some weakness, we have the utility strength that Dave was talking about.

So, a good balance in that portfolio and the results financially is that our model is working in deploying operating leverage throughout the system. So, you see 3% sales growth driving 5%, OP growth driving 11% earnings-per-share growth. So, we like when the model works that way. On page five, let's talk a little bit about some of that mix in markets that Dave talked about.

You see 3% growth overall to $1.2 billion of sales, most of that is price. So, it's reasonably flat outside of the price, and you see some real trade-offs. You notably -- you see in the oil and gas in the middle there, you'll see some weak oil, there was some lumpiness of projects that weren't implemented in the second quarter, leading to some softness there. I will say, we've got some backlog and expect some second half improvement from the oil business. But, the counter balance, gas really experienced some very strong demand from the gas utility customers, and the need to put in last mile components in the distribution infrastructure.

On the non-res side, you can see how the reno and relight is reasonably flat. New construction growing modestly. We think, we experienced some of our businesses slightly less well than that, where we had evidence -- saw evidence of some destocking throughout the channel. We have some instances where we have insight into point of sale data and we can see that -- we can see where that destocking happened throughout the second quarter, and we expect that condition to improve a little bit in the second half. But, as Dave highlighted, the electrical transmission and distribution markets really gave us some robust growth.

The distribution side, we certainly see our utility customers improving their performance of their grid networks through capital programs, and on the transmission side, we saw some of our larger customers implementing projects that help drove that. So, the net result of all that with price and some mix markets there, was an organic growth of 3%.

On page six, you'll see adjusted operating income rose 5% to $185 million. There's 40 basis points of margin expansion in there, which is quite welcome news. The margin expansion really being driven by the price cost management that the team implemented, and it's worth noting that we absorbed about 40 basis points of footprint optimization cost there. So, had we chosen to just harvest, I think you'd have seen more margin expansion. But, it underlines how important we feel it is to take advantage of some of that footprint investing, and we'll talk about that in a couple of pages.

On the earnings side, you'll see 11% growth to $2.31 adjusted earnings per share, while taxes did contribute to that. As you'll see, our effective tax moved from high 23s last year to about 22% this year, with some discrete items helping. Really, about two-thirds of that profit improvement came from the operating side of business. So, good contribution there from the core. Starting on page seven, I wanted to switch and break down our performance between our two segments, and we'll start with the electrical.

So, you'll see sales of $688 million, modest organic growth that was offset by some FX with the strong dollar. Price was quite good in the quarter and so that you can see that the result where units were soft. Some of the softer areas included the oil, which we mentioned -- the weakness that we saw there. But again, with some backlog, we're expecting that to improve a little bit in the second half. The commercial businesses were reasonably soft as well, and -- but we talked about some of the destocking we thought that was contributing to that, that may improve a little bit in the second half, slightly as well.

So, the operating income declined 50 basis points, you see a 13.6%, $94 million. The increased footprint expense more than drove that. So again, ex the restructuring, we would have seen margin expansion in electrical despite the very flat sales because of the effective price cost management that we have been pulling through there.

Page eight, we switched to the power segment. Really, really nice quarter by our power systems team. You can see 6% growth to $508 million of sales. Importantly, there's balance there between our legacy power systems business and Aclara, each contributing 7% organic to that performance, and we really do have a lot of things going right in the power systems segment here.

Number one, there is market demand. We think the utilities are upgrading their systems and implementing transmission projects. We think, we're very well positioned given that demand with our SKU breadths, reputation for high-quality products and having the right price. And so, it feels to us that we're getting our fair share of that market demand, given that our value proposition fits very well with supporting our customers and providing safe, reliable and affordable power to their customers.

And so, the sales side is quite good and you can see the operating leverage again down in operating income where operating profit increased 16% to $91 million and margin expansion of 150 basis points where you really have both levers working nicely. One is, you've got the higher volumes leveraging the fixed cost and you've got price cost benefit where the team is making up for getting a little bit behind last year, based on the inflation they were experiencing.

So, the result is quite attractive, incremental margins and a nice high growth quarter. So,

Unidentified Speaker -- Executive Vice President, Chief Financial Officer and Treasurer

so, good performance by power. Page nine, we get to the free cash flow generation for the year-to-date period, the first six months of the year. You can see about a 50% increase to $162 million. That performance was really driven with higher income, and as well working capital improvement, you saw both on the receivables side and the inventory side. So, we're quite happy with this cash flow performance. We feel like it puts us ahead of schedule in reaching our 2019 full year targets, and in fact, we had set out a 2020 target for you all, a while ago that some of you have mentioned recently, which was getting to $500 million of free cash flow in 2020.

You may remember that we did about $420 million last year. So, it would be really good to try to push here and get halfway between and get up to $450 million, $460 million of cash flow this year. You'll see that we've talked about free cash flow typically, historically, in terms of a conversion ratio of reported net income. Our reported net income this quarter was burdened by a non-cash pension charge, and so that conversion ratio went up without actually generating any more cash flow.

So, we felt, it's a little more insightful maybe to tie it to adjusted net income, and we'll think we'll do that better than 100% of adjusted net income. And really, this cash flow is helping our balance sheet lever. As you all know, we took on some acquisition debt in February of last year. We had debt-to-EBITDA of over three times, back in February, then we've got it down now to 2.5 times. We've also built up our cash position, so our net-debt-to-EBITDA is at around two times. And so, I think this puts us squarely back in the balance sheet position to support the acquisition program that you all, I think, got to know us pretty well for, namely adding on those $40 million-ish, $50 million-ish acquisitions, and do a few of those each year, and I would expect us in the second half of 2019 to return to that program.

On page 10, wanted to add a little context to the footprint optimization, and Dave talked about Susan's and Gerben's partnership here, but we've talken about it over this year

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

over this year and next year, investing about $60 million. We expect $30 million of that to be invested this year, and the idea would be to take out about 1 million square feet or roughly 10% of our footprint of manufacturing and warehouse space. This year, you can see we've got 10 active projects on the list, trying to get about halfway to that 1 million square foot to your goal, get about 500,000 out this year. And really, the four largest projects are pretty indicative.

Two of them are closing out high cost Northeast facilities, the other two are subscale facilities. And so, we're able to take advantage where we have common competencies and processes and other facilities. We can utilize the square footage that we've already got, and have the effect of getting our sales per square foot up, and our gross margins up. So, we still think we have runway here, and in fact we continue to build projects that we think have really attractive paybacks. And so, I feel like this program will likely continue beyond 2020 as well.

So, with that discussion of the second quarter, I was going to hand it back to Dave to give you comments on our outlook.

David G. Nord -- Chairman and Chief Executive Officer

Okay. Thanks Bill. Turning to Page 11, as we've talked about throughout, we're seeing some mixed end markets with puts and takes across the portfolio, but net our overall market growth is tracking in line with our initial expectations, overall. We've tweaked down our growth expectations across a few of the electrical end markets, but we now see stronger growth for the full year in T&D, and this is driven primarily by our legacy power business. Aclara still expecting to be in the mid single-digits for the year.

So, going around the horn, electrical T&D down 3.5%, you recall it was 3% to 5%. It was 2% to 4%. Non-res 1% to 3% which is same as prior. The industrial 1% to 3% down a little bit with some softness there. Oil and gas, 1% to 3% down a little bit, as we've seen the weakness in the first half and then residential 0% to 2%, same as the prior.

So, when we look at our outlook, we just said earlier, we are reaffirming our net sales growth of approximately 4% to 6% with our end market growth of 2% to 3%. The wraparound impact of Aclara in the month -- little over a month beginning of the year, adding 1%, no additional acquisitions contemplated in that, and of course the benefit of higher price realization. We have tightened our adjusted diluted earnings per share to $7.85 to $8.15 and that includes $0.40 of restructuring and related investment. And as Bill talked about, we're raising our expectations for full year, free cash flow conversion to 100% of adjusted net income. Certainly, feel confident about our ability to continue generating strong cash flow.

Turning to page 13. So, you put this all together in graph form, continue to expect strong growth from operations with some -- what we refer to as non fundamental headwinds -- incremental restructuring and a higher tax rate, still driving us to our outlook of $7.85 to $8.15. So, certainly off to a solid start in the first half, puts us well on track to achieve our full year commitments. We're well positioned with differentiated results, focusing on execution in the near-term, while at the same time, positioning us for future long term success. So, with that, let me open it up to Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Christopher Glynn from Oppenheimer. Your line is now open.

Christopher Glynn -- Oppenheimer -- Analyst

Thank you. Good morning. Hey Dave, on the electrical comments on the channels, just wondering if you could comment on what you think is there between the impact of channel adjustments versus end demand and also your conviction on the kind of -- or maybe not conviction, but comment that the second half destocking should improve versus -- view that maybe demand softening a little bit yet.

David G. Nord -- Chairman and Chief Executive Officer

Yes. I think that, with some point of sale data, Chris we can see where end customers are buying the product and the channel's, not restocking it. And so that happened with some cross-sectional data that we had, we could see that throughout the second quarter, a steady diet of that. And if you look, for example, at July orders in some of those lines of business, you can see a pick up there. So, that's kind of the basis, I would say, for us thinking that, that improved slightly. I'm not talking about a market inflection at all, Chris a, little bit cautious about overall growth, but it feels like that dynamic will help us a little bit with -- a little bit more electrical growth in the second half.

Christopher Glynn -- Oppenheimer -- Analyst

Okay. Thank you for that. And on the power margins, obviously a nice performance and up nicely year-over-year versus the first quarter was down a few points, year-over-year. Did mix or price cost really swing versus the first quarter, or just kind of curious of that?

David G. Nord -- Chairman and Chief Executive Officer

Yes, I think you saw a combination, less of mix, but more of price costs kicking in as well as you really do see the incrementals from higher growth in that business, right? So, that really helps contribute.

Christopher Glynn -- Oppenheimer -- Analyst

Got it. Thank you.

Operator

Next question comes from the line of Deepa Raghavan from Wells Fargo Securities. Your line is now open.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Hi, good morning, everyone.

David G. Nord -- Chairman and Chief Executive Officer

Good morning Deepa.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Hey, couple of questions for me. Curious on your second half outlook and what's baked into the guide? It looks like the quarter outpaced your expectations, at least power wise, there were puts and takes elsewhere. But -- add to that, the Q1 performance that was better than what you had expected, your guide really haven't moved. So, what are some of the incremental risks you're baking into second half that makes you keep the guide closer at the midpoint?

David G. Nord -- Chairman and Chief Executive Officer

Well, one of the things Deepa to keep in mind as a starting point is that our restructuring spend is a little more back end loaded. So, I think we spent $0.16 in the first half. So, that means we've got $0.24 to read our target of $0.40 in the second half. So that's -- we thought it might be a little more ratable throughout the year, but to make sure that we're going to execute effectively, some things get deferred. So, that's part of it, but Bill you want to comment on that?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, I think that, that is the single largest factor. I think other than that Deepa there is maybe a little bit of caution on the electrical volume side, and that is offset by some of the confidence we have in power. But, there's not -- there's no inflection or headwinds or risks or things like that, that we see.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Got it. With regards to non-res and res outlooks, obviously you didn't change it overall, but I have to assume just given your electrical commentary, there's probably a little bit of puts and takes in there. So, my question is more, does it feel like those end markets moved more toward the high end or low end of range? And how is it different versus what you thought earlier?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, I think the way when Dave went through the pie, he kind of showed that we kind of kept the overall 2% to 3% [Phonetic] and that's really supported by a stronger utility transmission distribution than we originally thought, and potentially at the lower end of both industrial, oil and gas as well as some of the non-res. So, the kind of nature -- the contributors to the pie changed a little bit, but retained kind of the same level.

David G. Nord -- Chairman and Chief Executive Officer

Yes, and I would add Deepa that, I would say probably, when we started the year versus now, I think we felt that those two markets in our outlooks had a bit of conservatives in them. Now, I don't think it has quite the same level of conservatism. I think those are still solid outlooks, but I think they're probably more predictable of what we expect to see, as the second half shakes out. So, that's probably the -- it hasn't changed, but the bias is probably more to the midpoint than at the high end.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Got it. My final question is price cost, I think last quarter you offered a 50 bps margin impact -- benefit -- margin benefit from price cost -- from positive price cost. What is it this time in Q2 versus the 50 bps from last quarter?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, similar half point Deepa.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

All right. Thank you very much. That's it. I'll pass it on.

Operator

Next question comes from Robert McCarthy from Stephens. Your line is now open.

Robert McCarthy -- Stephens Inc -- Analyst

Good morning, everyone.

David G. Nord -- Chairman and Chief Executive Officer

Rob, welcome back.

Robert McCarthy -- Stephens Inc -- Analyst

Yes, well, 10 years, give or take. So, I was going to actually ask you about that M&A charge from 2006 that was never disclosed [Indecipherable] who was that? Was what you and [Indecipherable] open [Indecipherable] vault?

David G. Nord -- Chairman and Chief Executive Officer

Deja vu all over again.

Robert McCarthy -- Stephens Inc -- Analyst

So much to talk about it, OK. Well, you know, I like pie, so let's go back to the pie. The first I would ask is, as you think about the non-residential overall low single digit, is there anything that's giving you pause in just thinking about, kind of the prevailing macro, and looking at institutional in terms of your relative mix of the portfolio that gives you pause, that perhaps, we could be seeing a topping out here into 2020, and there's some concern over the longer term?

David G. Nord -- Chairman and Chief Executive Officer

You know, I would say as we parse through it, you start to see some strengths in some of the public areas versus private rather than really the -- it's been growth in non-resident propelled by private, so that is a little bit interesting, we don't feel we have exposures specifically between institutional and commercial that kind of swing us either way. I think the expansion is getting in the later innings. The spending is still not at passing prior peaks, and so it doesn't have the feel to us of a roll-over as much as, maybe some uneven low single digit growth. So, we think it's part of why we're putting some effort into taking fixed costs out of our system to make sure we can get profit growth off of the low single digit environment.

Robert McCarthy -- Stephens Inc -- Analyst

Okay, that's fair. The second question is just around lighting, over the longer term. How do you think about whether you're going to be continue to invest in that business? Do you think, you have to think about being a net seller, do you get to think about exiting JV-ing or do you think it's a core business that you want to grow up over the longer term?

David G. Nord -- Chairman and Chief Executive Officer

Well, I think, we certainly made a lot of progress in this business through some heavy lifting, over the last few years and we think there's still more opportunity to go in that business. Obviously, the market is sometimes not supportive of that. I think right now it is, and we're certainly committed to continue to drive improvement in that business. So, it's been a important part of our portfolio and part of our strategy and being important to our channel partners.

That said that, that's like all of our business is always under review as its long term fit in our portfolio. So -- but I think we've put a lot of effort into it, and I think they've been performing and we certainly can see more opportunity on the upside for improvement in performance in that business.

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

And we saw -- just to add some detail underneath that Rob, we experienced some modest growth in lighting in the quarter. It was really price, so quite modest volume. The volume was even shifted a little toward resi and away from C&I. But the business got price above material cost, which is a second quarter in a row of that and a good sign of what Dave's kind of describing in terms of general health of the. the business, and maybe running a lower volume, higher margin kind of business there.

Robert McCarthy -- Stephens Inc -- Analyst

The last question is on power, obviously good new story, particularly today and the performance. How do you think about your cash generation there versus the overall company over the longer term? And what are some of your targets to even improve that cash generation? Give me some sense of how you expect conversion to kind of play out there over a longer period of time?

David G. Nord -- Chairman and Chief Executive Officer

Yes. The power business is a good cash generator. They're actually quite efficient in inventory days. They've got some high turning product and some made to order -- made to engineer product, and so -- and an efficient footprint. Their capex tends to be in line, and generates a lot of productivity, so the yield on the capex is very good. So, I would say within the power business, besides the margins and sales growth that you saw, the cash generation is quite good too.

Robert McCarthy -- Stephens Inc -- Analyst

Thanks for your time, appreciate it.

David G. Nord -- Chairman and Chief Executive Officer

All right. Thanks Rob.

Operator

Next question is from Jeff Sprague from Vertical Research. Your line is now open.

Brett Linzey -- Vertical Research -- Analyst

Hey, good morning, guys. It's Brett jumping in for Jeff here.

David G. Nord -- Chairman and Chief Executive Officer

Hey, how are you?

Brett Linzey -- Vertical Research -- Analyst

Good. Just want to come back to the restructuring, big quarter in terms of investment. How does that spend feather through the balance of the year? And then similar on savings, how much of that $30 million drop -- $30 million drops in 2019, and how that looked in Q2 and for the balance of the year?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So, as Dave was doing in cents, if I did it in dollars, we're going to spend $30 million this year. We've invested $11 million of the $30 million. So, we still have, two thirds, as Dave was describing it as back end loaded. Those projects that we'll do that spending have already started and initiated. So, it's not a question of things on the planning board.

And the savings are coming through in some of the projects, kind of in the two year range. And so, you'll see that we would expect over -- of the $30 million we're spending this year, we're anticipating getting $15 million of savings, maybe not all in 2020, that might be spread into 2021 and we would have a similar profile of savings for the next $30 million that we would spend in 2020. And so, I'd also say, to the extent, if Rob's question around -- is there somehow, some softening coming that's a little more pronounced. I do think, we would probably respond with some more restructuring and take more cost out, if that kind of market condition were to prevail.

Brett Linzey -- Vertical Research -- Analyst

And then, just as a follow up, specific to the actual investment. How does that layer through Q3, Q4 just in terms of modeling purposes?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

About $10 million a quarter. I think you can split it about evenly.

Brett Linzey -- Vertical Research -- Analyst

Okay. All right. And then, just shifting over to Aclara. What are the expectations for the balance of the year, in terms of revenue? And then, in terms of the returns on that investment, how are those trending, as you look at the anniversary here in the first quarter?

David G. Nord -- Chairman and Chief Executive Officer

Yes. I would say that the first thing to note in the quarter was the balanced growth between Aclara and legacy power systems, both at 7% organic. And to us, that's a very good sign of customer acceptance and the view that the Hubbell Power segment is providing a broader set of SKUs now to our utility customers. So, we think that, that's quite good news. The margins coming out -- and we would expect that to continue for the second half of the year.

The margins since we've owned Aclara have been double-digits versus you see the legacy business is high double digits, and that's been dragged down by the fact that we've had some difficult installation contracts and by the fact that our mix has been skewed more toward meters, and away from the communications devices. And so, as you talk about returns where we're going to see really positive equity story type returns, will come as the communications -- the smart grid communications, sales crossover from the traditional Aclara customer, which has been the muni and co-op customer into the investor-owned utilities, that's the core Hubbell Power Systems.

And that sale cycle is going to take us a couple of years to get there. So, having that was kind of outsized equity returns, I think is still in front of us awaiting that kind of sales cycle to come to fruition. I would say, as we monitor that sales cycle, we're quite encouraged by the meetings that we get. We're quite encouraged by the customer feedback that we get, and the products that we've got seems to be -- our expectations are quite high for what will happen as we go forward.

Brett Linzey -- Vertical Research -- Analyst

Okay, great. I'll leave it there. Thanks, guys.

Operator

Next question comes from Steve Tusa from JPMorgan. Your line is now open.

Steve Tusa -- JPMorgan -- Analyst

Hey, guys. Good morning.

David G. Nord -- Chairman and Chief Executive Officer

Good morning.

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning.

Steve Tusa -- JPMorgan -- Analyst

Can you just talk about the non-resi environment that you're seeing out there, there's been talk of a few project push outs and the economy's a bit choppy? So, anything on that front, that's a surprise to the downside at all?

David G. Nord -- Chairman and Chief Executive Officer

No, I'm certainly not going to use that word that you used. I've banned it, but I think we have seen certainly some project delays. I think that's created a little bit of a volatility in the order book, or the release of orders. But, certainly for the rest of this year, it seems like things are pretty solid. Again, not at the same growth levels that we -- the high end of a growth levels that we might have anticipated, going into the year. So -- but it's too early to determine what that means, beyond this year, for sure. But, as Bill mentioned, we're certainly not at peak levels. So, while we may be in later innings, there's a question about, how much longer and, we don't see any storm clouds out there, if you will.

Brett Linzey -- Vertical Research -- Analyst

Okay. And then lastly, just on price cost. I don't know if you guys talked about this. I missed kind of the first part of the call. But, what are you thinking for the second half in price cost?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So we think the pricing environment stays intact. So, we've got a couple of points there of price. It's interesting, as the second half comes Steve, one of the more important commodities for us is steel. As you know, we're starting to see and expect some tailwinds from steel, and yet, we still have an inflationary materials expectations. So, a lot of our components are still experiencing inflation, some of the resin side and in others. And so, as some of those pricing increases that we pulled, start to get lapped, I think we -- instead of that being a headwind, we're going to get helped by the commodity tailwind that will fill that back in. So, I think you'll see kind of a steady contribution from price cost, even though the components are a little bit different.

Steve Tusa -- JPMorgan -- Analyst

Okay, great. Thanks for the color.

Operator

[Operator Instructions] We have Nigel Coe from Wolfe Research. Your line is now open.

Bhupender Bohra -- Wolfe Research -- Analyst

Hey, good morning, guys. This is Bhupender here, sitting in for Nigel.

David G. Nord -- Chairman and Chief Executive Officer

Good morning.

Bhupender Bohra -- Wolfe Research -- Analyst

Good morning. So, just want to touch on Steve's question here on price cost. Could you give some color on electrical versus power? How the -- I remember -- I believe, you gave some color on like the lighting business here within -- for the price cost. Could you give some color on electrical and power business? Thanks.

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. Power was a little bit above the half point, we cited in the quarter and electrical a little bit below that. The first quarter was actually the opposite dynamic. Electrical contributed a little bit more. I think for the second half, we'd expect power to kind of be at the higher end of the half point we talked about, and electrical a little bit below that as well.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, got it. And just moving on to the pie chart here, the end market stuff, you talked about, what actually drove the T&D strength, and could you talk about like if that's sustainable, like in the second half?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. We think it is sustainable. We think that for our addressable markets, the largest contributor is the distribution. You know that last mile, and that spending was the strongest. It tends to be systems hardening and upgrades, they tend to be in capex, capital projects. And so, as we look at orders and we look at backlog and we talk to customers, that does feel sustainable throughout the second half.

The transmission side is little bit smaller than the distribution, that's been driven by the fact that some of our largest customers are doing some projects, so that's helped move the needle, and the visibility on those projects also is pretty good. And so, the second half feels very sustainable in terms of -- and that's why we really raised on the pie, where we raised the T&D growth outlook.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, got it. And my last question here on the -- Dave, you mentioned about the -- I think, you even gave some color on the orders here for the non-resi side, you believe there are some delays here. Could you just give us some -- kind of cadence through the quarter, like in terms of order and what you're thinking or seeing in July in terms of daily order patterns here? Thanks.

David G. Nord -- Chairman and Chief Executive Officer

Orders in the electrical segment overall have been lumpy. It depends, we -- and it's hard to really determine what's underlying demand, over a short period of time. period of time, because you've had this issue of inventory in the channel, and a little bit of destocking. So, in some of the businesses, you saw -- you might have seen a weak June -- May-June, and then it turns back up in July. So, I think that, from our standpoint, is evidence of some of that destocking coming into play and then timing. On the other side, if you're on a project business, some of those project businesses have some lower order rates until those projects release. All indications are that they're going to release, it's just that they've been pushed out a bit. Obviously, there's always the risk that they don't, but we're not seeing that, we're not hearing that, right now. So...

Bhupender Bohra -- Wolfe Research -- Analyst

Are you seeing those in the oil and gas? I mean, like oil was weak in the quarter? Is that something you would point to?

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. I think, we -- those projects -- Dave's word of lumpy is even quite applicable there, where some of the backlog we think will get spent there in the second half.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, got it. Thank you so much.

Operator

[Operator Instructions] I'm showing no further questions. I would like to turn the call back over.

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks operator. That concludes today's conference call. I will be around for the rest of the day. If you have any questions, and we'll be available for calls. Thanks for joining us.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Dan Innamorato -- Director of Investor Relations

David G. Nord -- Chairman and Chief Executive Officer

William R. Sperry -- Executive Vice President, Chief Financial Officer and Treasurer

Unidentified Speaker

Christopher Glynn -- Oppenheimer -- Analyst

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Robert McCarthy -- Stephens Inc -- Analyst

Brett Linzey -- Vertical Research -- Analyst

Steve Tusa -- JPMorgan -- Analyst

Bhupender Bohra -- Wolfe Research -- Analyst

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