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Hubbell Inc. (NYSE:HUBB)
Q3 2020 Earnings Call
Oct 27, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to third quarter 2020 results call. [Operator Instructions] [Operator Instructions]

I would now like to hand the conference over to Mr. Bill Sperry, Executive Vice President and CFO. You may begin.

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

Good morning, everybody. Thank you very much for joining us. Usually, we've got Dan Innamorato kicking off our call. And Dan and his lovely bride decided to go to labor and delivery this morning to hopefully welcome their first child, and so we're going to be joined instead this morning by Jay Penn. Jay is in his second year with Hubbell, and he's been leading FP&A for us here and you may know his name or his voice from his -- some prior lives he's had in IR.

So Jay will get us started.

Jay Penn -- Investor Relations

Thank you, Bill. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter 2020. The press release and slides are posted in Investors section of our website at hubbell.com. I'm joined today by our Chairman, Dave Nord; our CEO, Gerben Backer; and as you just heard, our Executive Vice President and CFO, Bill Sperry.

Please note that our comments this morning may include statements related to the expected future results of our company and are 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 referencing to 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 slides.

Now let me turn the call over to Dave.

David G. Nord -- Executive Chairman

All right. Great. Thanks, Jay, and good morning, everybody. Before I turn this call over to Gerben, who's going to lead the earnings call, I want to just say a few words to close out my tenure as CEO and officially pass the baton on. You saw our announcement in the third quarter of our long plan thorough succession process, resulted in our Board of Directors naming German as the next CEO of Hubbell. Along with the rest of the Board, I'm highly confident that Gerben will continue to build on a long proven track record of success at Hubbell and lead this company successfully into the future.

Gerben had added a tremendous amount of value for Hubbell over the past 15 months in his role as Chief Operating Officer. He's been instrumental in continuing to shape our long-term strategy, while also leading our operational transformation. And you're seeing the results of those efforts come through in our recent performance. Gerben has also built a strong track record in his prior role leading our Power Systems business, where he delivered strong financial results for our shareholders, strong operational and service results for our customers and really strong performance-oriented culture among the employee base.

He has also played a critical role in building our Utility Solutions platform through the acquisition of Aclara. But Gerben knows his success and Hubbell success is really dependent on the strength of the overall team. And certainly, we've got a great team and I have to highlight that there's some really key people, one that you all are familiar with is Bill Sperry, who's a very strong financial and strategic partner, and will continue to help guide Gerben to future success.

And I know I can speak highly from my own experience and knowing how valuable that role is and how valuable Bill has been to that. But we've also been active in developing new talent, both internally and externally in our organization at all levels, particularly at senior leadership. You recall our recent appointment of Pete Lau to lead our unified Electrical Solutions segment as well as Alexis Bernard as Chief Technology Officer; and Katrina Redmon as Chief Information Officer.

And we also recently promoted from within Hubbell a long time and very talented sales executive, Terry Watson as a VP of Customer Experience. And of course, most of you have met Susan Huppertz over the last couple of years and know how much value she's added in our operational transformation. So while I'm certainly going to miss being CEO of Hubbell, and meeting with all of you every 90 days. I thought 61 times over the last 15 years is probably enough, but I'm proud of the leadership team we've built, and I'm confident in Gerben and the rest of the team's ability to lead Hubbell into the future.

So with that, let me turn it over to Gerben to talk about our strong results for the second quarter -- third quarter. Thanks. Gerben?

Gerben W. Bakker -- President and Chief Executive Officer

Great. Thank you, Dave, for the kind words, and I just want to add how honored I am to take this new position at Hubbell. Good morning, everybody. I've seen firsthand that what makes this company special, our talented people, our reliable products and our long-term relationships with our customers. I look forward to building on the success that we've achieved under your leadership Dave. I'm confident that we have a bright future ahead. Moving to the third quarter.

I'm going to start my comments on slide three with a brief summary of what was another strong quarter of operating performance and free cash flow generation for Hubbell. We achieved high single-digit growth in our Power Systems business in the quarter, as secular grid modernization trends continue to drive the need for utilities to invest in critical grid infrastructure. We continue to differentiate ourselves in this space with our unique Utility Solutions platform as well as our reliability and service, and we anticipate T&D markets to remain supportive of growth.

As expected, Electrical markets remained soft in the quarter. We saw steady sequential improvement relative to the second quarter, but most end markets continue to see year-over-year decline, with a notable exception in our residential lighting business, which grew double digits in the quarter with strength in e-commerce and retail channels. Our operational transformation continues to pay dividends with structural savings on the investments we're making in footprint optimization, and we continue to execute on price cost while benefiting from proactive cost control as well as more temporary lower operating expenses.

We continue to generate strong levels of free cash flow with almost 30% growth year-to-date. And this cash flow allows us to pursue a balanced capital allocation strategy and generate attractive returns for shareholders. In fact, we closed on a couple of bolt-on deals in October following the quarter close, high-margin businesses in attractive markets, and we'll talk a little bit more about them later in the release here. Looking ahead, we're raising our guidance for the full year based on strong performance in the third quarter and a higher levels of visibility through year-end, particularly in our Utility markets and our execution on cost. Let's turn to page four to highlight our results for the quarter.

You can see organic sales declined 8%, with demand for Utility T&D components and our Power Systems business remaining strong as our Utility customers continue to invest to upgrade, modernize and harden the grid. Outside of the Power Systems, we continue to experience project delays at Aclara and generally soft economic activity across most Electrical end markets, driven by the COVID-19 pandemic, though demand did improve sequentially in the quarter. Despite the volume declines and similar to the strong operating execution we've demonstrated throughout 2020, we achieved another quarter of operating margin expansion.

Our investment in footprint optimization continued to pay off with attractive and structural savings. We realized positive price cost across the portfolio, and we continue to manage our costs across Hubbell as well as benefit from the more temporary lower operating expenses. From an operational perspective, we are managing through the challenges of the pandemic effectively. As an essential manufacturer our factories are open and operational. And while we experienced some supply chain disruption in the second quarter, these have been resolved, and we operated much more effectively in the third quarter.

Our focus remains on protecting the health and safety of our employees while continuing to serve the customers with the products they need to operate critical infrastructure. Finally, you see another quarter of strong free cash flow generation. This cash flow not only supports our strong liquidity position, but also gives us opportunity to reinvest in the business and deploy capital to our shareholders and Bill will give some more color on that later.

With that, let me turn it over to Bill to walk you through our results for the quarter in more detail, and I will come back later to provide some insights on our outlook.

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

Thanks, Gerben, and I welcome you to your next 61 quarters. And good morning, everybody. I'm starting on page five of the slides you hopefully found and you see the sales contraction of 8% that Gerben had highlighted. But the good news for us is that represents a sequential growth from the second quarter of about 17%, which was really good to see both a pickup in demand and also the smoothing out of supply chain disruptions that we experienced in Q2.

Operating profit, down 5%, but up 60 basis points, I think managing to that 10% decremental ballpark, very successful execution by the operating team. You see the earnings per share only $0.04 less than last year at $2.30, despite 8% lower profit growth. But below the OP line, we had a little bit of favorability in nonop, as we had lower interest expense and then paid off some debt. We also had some favorable tax as our effective tax rate was about 22.3% in the quarter comparing favorable to 23% last year, largely on some provision to return favorability as some of the tax rates got finalized and clarified.

Also, I think, importantly, on the cash flow, you see the quarterly amount 10% below last year at $135 million, but the yellow box to the right, indicating a 29% improvement year-to-date. We typically, over our last five years, we've shown, on average, to have the second half of the year, generate about 70% of the free cash flow. So very back-end loaded versus this year, a much more balanced and even much closer to 50-50. And so the year-to-date number is well ahead of last year, largely as we are offsetting the lower profit with better working capital management, and we'll talk a little bit more about that a couple of pages from now. We'll unpack now the performance into our two segments, and we'll start on page six with Electrical.

You can see the challenging demand environment that we're operating in 3Q as Electrical sales were down 14% to $591 million. That sales decline was quite broad-based. The industrial -- the heavy industrial markets were the hardest hit, but most of the balance of our Electrical markets were off there in the mid-teens range. The one exception was residential, largely the lighting product, where they saw double-digit growth, driven by strength in people doing more renovation spending while they're at home. I also wanted to point out, you see the point on net M&A neutral, some small amount of portfolio management happening during the year.

And you'll recall in the third quarter of last year, we sold the Swiss-based high-voltage test equipment business called Haefely. And we bought CPI, a connector business fitting in with the Burndy brand. Those two -- the sales that we sold versus we acquired offset each other, but we acquired at much higher margins. And so that's a net gain through buying and selling within the portfolio. You see on the operating profit side, a 20% decline to $76 million or 12.9% OP margins, about a 1-point decline, which was really driven by the decrementals of the lower volumes and partially offset by effective price cost management as well as footprint rationalization.

Page seven, we'll switch to see a really strong performance turned in by the Utility Solutions segment. Really revealing the strength of our franchise, strong brands, strong relationships with customers, large installed base, high-quality components and being essential to helping our customers powering people's lives. It's important to disaggregate the segment between our legacy Power Systems and Aclara. Now you see that Aclara was down 16%, behaving more like some of our electrical businesses, really a function of lumpiness as most of their demand is on large contracts and installations and the rolling on and rolling off can get a little lumpy.

They also had significant access problems as when you get closer to post people's homes, and they were -- we were prevented from putting in some of the product there. So at the -- when you put your lens back on Aclara, though, for the couple of years, we've owned it, it's been in a nice mid single-digit growth. So -- and we're anticipating that into the future. But the star of the quarter for us was the Power Systems business, up 9%, really three drivers to that. One was secular market growth, the other was storms, and the third was entering the quarter with an elevated backlog.

I think the secular market growth Gerben referred to really seeing on the distribution side that last mile, grid hardening, spending on components and transmission aided by renewable spending that are required to transmit the longer distances to get the electricity to the customers. The storms in the quarter added between three, four points. That really does help sales in OP in the quarter, but I'd argue more importantly really reinforces the value proposition that we've got in our Utility franchise, namely, offering those quality solutions at really, really critical time to our customers to allow them to get there.

The lights turned back on and get their revenues reengaged. So really successful quarter for Power Systems. And as a result, the Utility Solutions operating profit grew 11% to $105 million and breached 20% OP margins in the quarter, expanding by a couple of points. And that's really a function of very strong execution on price cost, good productivity, but also you see the effect of mix. So power outgrowing Aclara is mix friendly. And inside of Aclara, the piece, the lower margin end of the portfolio, which is the installation side is where there's some access restrictions.

And so the combination is to help be a positive contributor to margin expansion. I wanted to show you a margin bridge year-over-year for the third quarter because I think it's instructive, not just on this quarter, but how we're thinking about managing the income statement as we go forward. So you'll see that the picture starts at 15.8% in the third quarter last year. Then you see the negative impact of the volume declines, the decremental effect there that has to be overcome in order to expand margins 60 basis points. I'm going to read the green bars kind of right to left and start with cost benefits.

So that's naturally variable expenses that are proven to be tailwinds in the COVID environment, things like T&E, medical and supplies. And that there's a natural partial offset there between the volume and those variable expenses. Next, you see price cost, which is something that we focus very closely on managing year in and year out. You see favorability in this quarter. That was helped by the fact that with volumes down, you had commodity prices down. But sequentially, we see volumes pick up, we naturally will expect inflation in those commodity areas, which means as we get into next year, we're going to have to be focused on getting price to manage that price cost equation.

And the restructuring and related footprint optimization work, you can see how important that is to our equity story going forward, and we anticipate continuing to have this kind of contribution from restructuring and why we've had a multiyear program that we'll keep investing in and keep getting very favorable paybacks on. So hopefully, that's a helpful picture of how we got the margins to expand and how that can relate to the future as we go forward here. Switch to free cash flow on page nine. We'll see that 29% improvement year-over-year to $404 million, really improving the balance sheet getting our net debt-to-cap ratio down to about 34% range.

So very healthy to support investing. This cash flow performance is essentially replacing reduced income with lower working capital needs, the largest contributor to the working capital management is inventory, but receivables has also been sourced. So we worked very hard, as we saw the conditions of the pandemic rolling through, starting in March and April to constrain inventories. We've continued to service our customers, but managed that line item closely, and it's really helped support the free cash flow, which, in turn, helped support our capital deployment strategy.

And I mentioned during earnings, we paid back a little bit of debt, and we had lower interest expense. So that was the term loan that we used to acquire Aclara. So that's entirely paid off now. We also have, as Gerben described, closed on two acquisitions in October post close of the quarter. One was a small product line inside of Power Systems, a very high-margin product line that we're happy to add. And the second, which you see detailed here is called AccelTex, which makes antennas and enclosures that work inside of the wireless world and are creating better connectivity and better performance of wireless networks. So common application is to improve cellular reception inside of a building through distributed antenna systems that you maybe have all heard about.

So there's a chance for us to acquire exposure to high growth, very high-margin business that fits inside of the Electrical business. Besides acquisitions and debt payback, you also, I hope, saw last week, an increase in our annual dividend by about 8%, and we also reauthorized share repurchase program at $300 million. Certainly, I'm happy to have that authority to do that, probably not for you to model in the $300 million over the course of the next year or so. But I think we'll still be tilting our capital deployment toward -- toward acquisitions, but good to have that authority, of course, to make those investments in our own stock. Page 10, we've got a look at our end markets and how they've performed during the course of the year and maybe how they're leaning as we go forward.

I'm going to start at five o'clock on the pie at gas distribution. And similar to some of the Aclara business, we've seen demand there, but a lot of our activity is near the house and even in the basement. And so having restricted access that's prevented that business from growing. The explosion proof devices, we sell into upstream oil continuing to be weak off of a low base. On the industrial side, we distinguish a little bit between the heavier side where applications would be inside of steel mills or componentry that assist in locomotive production as examples.

We've seen that to be so quite soft, a little more resilience on the lighter side of the industrial space. Resi, a clear area of strength for the year. I think as people have spent much more time in their homes than they are used to seeing them doing quite a bit of rental spending and making that home space more enjoyable to live in. So our resi lighting, for example, has seen much stronger orders, both in big box retail as well as through e-commerce channels. And nonres, we continue to see contraction and put in place spending and have a cautious near-term outlook as we end the year. But going around past noon to the Utility space, you see demand really remaining solid on the transmission and distribution components. And I really think there are four drivers that are really helping us.

We've got an aged infrastructure that really requires modernization and upgrade. That's proving to be secular here that need. The leaning toward renewables is causing demand for transmission on where that wind or solar is being harvested needs to be transmitted the miles to get to where the users are. I think as well, the environmental impacts have been quite profound on the grid, whether that's hurricane or an ice storm or a fire, depending on where you're located, it seems we're all exposed in some way to these environmental impacts, and that's placing an increased demand on utilities, hardening their infrastructure to be able to interact in the environment more successfully.

And the fourth driver I'd say it is in automation, which is really important and leads to major savings to utilities as they maintain and repair their grids. It allows for collection of data and communication of data that can become very important in efficiently running networks. And that's everything from meter reading to reclosers that are clearing faults to maintenance and fault detection products. And so I think we've seen those prove to be secular growth drivers that are powering through the pandemic environment.

So with that discussion of our end markets, I am going to hand it back to Gerben.

Gerben W. Bakker -- President and Chief Executive Officer

Great. Thanks, Bill. And I'd like to make perhaps a couple more comments on what Bill just stated, and this is really something that I'm very excited and optimistic about. And that is the continued strength in our Utility facing markets, driven by the secular grid modernization growth. As the economy continues its transition away from fossil fuels and more things get plugged into the electrical grid, this creates the need for new solutions behind-the-meter, at the meter or at the grid edge and in front of the meter, and we've talked about this in our Investor Day as a leader across the energy infrastructure, Hubbell is uniquely positioned to solve these problems for our customers.

Things like protecting the electrical critical infrastructure, enabling the transition to renewable energy, building a more efficient and connected grid and increasing the energy efficiency of buildings and homes. And we can do this through our products and solutions, but we're also committed to doing this as part of a manufacturer to our sustainability initiatives. We've set multiyear targets to reduce our water consumption and greenhouse gas emission, and we also refreshed our sustainability website with new details on the initiatives we're undertaking and the expanded disclosures around their operation.

I encourage you to visit our website and look forward to providing you some additional updates on our efforts as we go forward. Now let me turn to page 11 for an update on our outlook. While the macroeconomic situation remains uncertain, we're confident in the level of execution we've demonstrated over the past several quarters. With increased visibility through the year-end, continued strength in our Power Systems business, improving market as well as the execution of cost, we are raising our 2020 adjusted earnings per share guidance from a range of $7.0 to $7.25 up to $7.45 to $7.60. From a volume standpoint, we expect the fourth quarter to continue to show improvements.

We expect a similar theme, as we saw in the third quarter, with Electrical year-over-year volume declines moderating and our Utility markets holding up more resilient. Within Utility, we expect Power Systems to achieve another quarter of year-over-year growth, while the declines at Aclara are expected to continue, but at moderating levels as projects get restarted. On margins, we continue to be bolstered by restructuring savings of about $25 million. Price cost has been a positive throughout 2020, but these benefits should start to pay going forward.

We also expect the return of some operating expenses, which have run below normal levels throughout the pandemic, but we'll continue to actively manage this trade-off relative to improving volumes. And finally, as previously disclosed, we had a discrete benefit in the fourth quarter of 2019 related to tariff exclusions, and this will create some distortion in this year's fourth quarter margin compare. On cash, we expect to deliver approximately $550 million for the full year, representing double-digit growth over 2019, despite the declines in revenue and earnings.

Let me also provide some comments as we look ahead into 2020. We'll provide guidance when we release our fourth quarter results. But we're in the middle of our planning process right now, and we're anticipating a year of modest market growth in '21. We expect our Utility facing end markets to remain solid, while our Electrical market should continue to show steady improvements into '21. On margins, there will be a lot of puts and takes. But on net, we're planning for a year of modest margin expansion with our operational transformation actions continue to provide tailwinds.

To summarize, we are very pleased with Hubbell's performance and execution in the third quarter, delivering margin expansion, strong cash generation and essentially flat year-over-year earnings per share in what remains a challenging environment. We are raising our guidance for the balance of the year, and we remain confident in our ability to deliver differentiated performance for our shareholders over the near and long term.

This concludes our prepared remarks for the quarter, and maybe we can ask the operator to operate the line now for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Jeff Sprague from Vertical Research. Your line is now open.

Jeff Sprague -- Vertical Research -- Analyst

Thank you. Good day, everyone. Dave, enjoy the retirement. Hopefully, we'll see you around in Connecticut here and there.

David G. Nord -- Executive Chairman

You're right. Thanks, Jeff.

Jeff Sprague -- Vertical Research -- Analyst

Yes. All the best. I wonder if we could talk about Aclara a little bit more, Gerben. So, your view that some of the project delays are starting to wane. How do we get confidence in that actually if kind of COVID is still raging? And you'd seen we still have kind of these access issues?

So, are your customers taking other precautionary actions or something that would allow them to move forward? Just a little additional color on how you expect this to play out into Q4 and then maybe what the setup is for Aclara into 2021, given the comps that you're going to have here?

Gerben W. Bakker -- President and Chief Executive Officer

Right. Good morning, Jeff, and yes, it's -- I think you used to word caution. And that's still very much what we're seeing with our customers. If you think there's really two phases of activity again. One is resuming projects that were put on hold and there is enormous pressure on Utility companies to resume. There's a lot of fixed cost that they have when they deploy these projects. And when you come to a stuff like this, you don't eliminate all those costs.

So certainly, Utility customers that are in the middle of deployment, feel the pressure to restart those. So, we're doing that right now. I would say we're doing it pretty successfully, but with a lot of precautions to make sure that, that certainly, we don't infect our own people and the people that go into the homes. The second area is, if you are utility and you haven't started the project yet, there is a tendency to not start for that same reason, right?

Because once you get started, there's a lot of costs that you're deploying and you want to make sure that you don't get interrupted a month later. So that's where we're seeing a little bit of projects continuing to move to the right. The positive is that we're continuing to see the projects. We're continuing to quote on projects. Our backlog continues to be strong. So, we believe that this is a move to the right as opposed to demand slowing. So as a result, we do see the second -- the fourth quarter improving, and we see 2021 improving further.

Jeff Sprague -- Vertical Research -- Analyst

And separate, unrelated, could you just speak to channel inventories? We heard from Schneider that there's a rebuild going on across their channels. Obviously, they're much broader and globally diverse, etc. But what is going on with the channel? And maybe as part of that, you noted kind of the price cost will start to narrow. But are you out with or plan to be out with kind of pricing as you look into the new calendar year next, you think?

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

Yes, Jeff, I think we did see during the second quarter, some destocking happening in the channel. And I'm not sure we have lots of evidence that everything has been restocked. So as Gerben and I have been meeting with our customers, I think there's a general cautiousness, and I think they're happy to have some of their inventories lower, and they're happy to put demands on us to make sure we can deliver things on time, especially, in vendor-managed inventory situation. So, I don't think we've seen a big restock yet that has offset the destocking that happened.

I think we're -- everyone's kind of playing to see how volumes unfold. And yes, on the pricing side, sequentially, certainly, I think copper kind of bounced first, Jeff, right, but steel, aluminum coming. And so, I think we felt very successful through, for example, the tariff period, working with our customers on price. And I think this will be a new phase where we have to get it. And you're right that, that's not -- that doesn't happen in a week. That takes usually, several weeks of conversation and planning and working with customers to get that figured out. So, there's a process on that under way across various parts of the company.

Jeff Sprague -- Vertical Research -- Analyst

Thanks a lot. I appreciate your time.

Operator

Your next question comes from the line of Steve Tusa from JPMorgan. The line is now open.

Steve Tusa -- JPMorgan -- Analyst

Good morning.

Gerben W. Bakker -- President and Chief Executive Officer

Good morning, Steve.

Steve Tusa -- JPMorgan -- Analyst

Congrats to Gerben, and congrats to Dave as well.

David G. Nord -- Executive Chairman

Thanks, Steve.

Gerben W. Bakker -- President and Chief Executive Officer

Thank you.

Steve Tusa -- JPMorgan -- Analyst

So, just on the cash flow for next year, is this year a good base for growth? Or are there certain things that were -- that are kind of unsustainable in a down revenue environment, a volatile revenue environment here?

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

Yes. I think, Steve, the two things that -- I think it's a difficult level to grow from. And so, I think 2019's level is much more the way that seems of the right pace. So, one of the factors that contribute to that is the fact that we've had some tailwind from the CARES Act and how payroll taxes were able to be deferred. So that switches next year from a tailwind to a headwind.

And the balance is the relationship between as we ramp volume back up, the requirement to invest in working capital, most notably in inventory. And so, the incumbent upon us to kind of manage those days last year. But it's -- I don't think of this year's level as a good point to grow on. I think we'll be growing off sort of the 2019 level.

Steve Tusa -- JPMorgan -- Analyst

Okay. That makes sense. And then just lastly on some of these deals and kind of carryover. Any other kind of carryover puts and takes in the next year? I know you guys just talked about price cost a bit, but any other moving parts next year just that are -- that may be more mechanical for the view?

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

Yes. I think Gerben mentioned the distortion in the fourth quarter from some of the tariff exemptions that kind of were lumpy as they came through there. The storms that happened in Q3, it's always storm season. This happened to be an active year. Hard to know how much of that repeats. But kind of typical puts and takes, I would say, Steve.

Gerben W. Bakker -- President and Chief Executive Officer

Maybe to add to that on the opposite side of that is our continued work on the footprint realignment and that should -- data provide tailwinds for us into 2021.

Steve Tusa -- JPMorgan -- Analyst

Right. Okay. Thanks, guys.

Operator

Your next question comes from the line of Nigel Coe from Wolfe Research.

Nigel Coe -- Wolfe Research -- Analyst

Thanks. Good morning. Also, again congratulations, David, congratulations and enjoy the retirement. I think we're all quite jealous about that.

David G. Nord -- Executive Chairman

Thanks, Nigel.

Nigel Coe -- Wolfe Research -- Analyst

You've definitely done your tour of duty then. So, I want to call it back to price cost because I'm not sure if the margin bridge is the scale, but it looks like it's certainly well north of the point of price cost benefit this quarter. So maybe just comment on that. And then as we go into 2021, it feels like steel and aluminum inflation is kind of hitting at the right time in at the end of the year, beginning of the new year when you normally put through some price increases.

So, do you think you can be more proactive on the pricing discussions than you have been rather than you were in, say, 2018? And then on freight, it's part of the same discussion, do you normally surcharge rates to your distributors just because obviously, freight rates are running quite hot right now?

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

Yes. So, let's talk about -- we had a couple of pieces to that, Nigel. So, the price cost in the quarter was favorable. The order of magnitude is reasonable. We had kind of the two effects of we were getting price plus commodities were a tailwind, which -- that's kind of a -- that happens, but it's an unusual arrangement. So that will be moderating, obviously, as we move forward. I think your point on steel and aluminum is exactly right. And I totally agree with your timing point that it's good to be able to have that come up at the end of the year because a lot of -- in, particularly, a lot of the Power Systems is done on blankets, and that happens around this time of year. So, you're reliant on doing that.

I think, certainly, as tariffs rolled us in 2018, we learned a lot about how to have the pricing conversations with our customers. We learned how to share that information, make sure they understood where we were coming from. And importantly, we learned to ask and that you have to ask and I think we had a favorable experience managing through that tariff. So, I think we'll apply all that learning. And note to your freight points, we typically do not get reimbursed for freight. Unless there are occasions inside of some storm business, for example, that would be rush, that maybe a customer would pay, but typically, we do.

And so, it's interesting coming out of some of the disruptions, Nigel, of the second quarter, I think we found ourselves in the third quarter doing more expedited freight, having kind of inefficient mode usage. So maybe a little more LTL rather than truckload, a little too much parcel, a little too much express because we're kind of coming out of the disruptive quarter and looking to keep customers service at adequate levels. So, I think that as within freight, I think we're looking to kind of reget that mode shift back to favorable mixes that will come out of a more normal supply chain, smoothly running supply chain.

Nigel Coe -- Wolfe Research -- Analyst

Okay. Bill, that's great color. And then my follow-on would be that, obviously, the outlook for Power Systems in 2021 beyond looks pretty good. Are you getting in from D.C. on what a Stimulus Bill might look like and how that might benefit your smart grade investments and specifically, how it benefits Hubbell? Any color there?

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

Yes. I don't know that we do have any unique insights to how Stimulus Bill might specifically effect. I think it will be interesting to see how the next week goes and what we have policy wise rolling down at all of us.

Gerben W. Bakker -- President and Chief Executive Officer

Yes. Maybe just would add to that, Nigel, that independent perhaps of policy, there is definitely investment in these areas. And I would say, almost neutral of what party is in charge, but we believe this business is really well positioned with secular growth trends in renewals with the upgrade and modernization of the grid and so we're very optimistic about this area over the next few years, independent of policy.

Nigel Coe -- Wolfe Research -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Deepa Raghavan from Wells Fargo Security.

Deepa Raghavan -- Wells Fargo Security -- Analyst

Hi, good morning. First off, Dave, good luck, and thanks for your leadership.

David G. Nord -- Executive Chairman

Thanks, Deepa.

Deepa Raghavan -- Wells Fargo Security -- Analyst

Official congratulations to Gerben, looking forward.

Gerben W. Bakker -- President and Chief Executive Officer

Thanks, Deepa.

Deepa Raghavan -- Wells Fargo Security -- Analyst

Two questions. One for Gerben, one for Bill. Gerben, can you talk through trends in the quarter, July, August, September? And generally, talk through how October has shaped up so far? But also touch upon if any verticals disappointed you based on what you were expecting 90 days ago? And then I have a follow-up for Bill.

Gerben W. Bakker -- President and Chief Executive Officer

Yes. We've certainly seen through that period, strengthening. And I think that was one of the reasons why we narrowed our guidance range with more visibility, and we increased our guidance. So, I would say some markets have been stronger than others in that. I think the industrial market, specifically the light industrial markets. We've seen some pretty nice rebounds over that period. The one that we continue to be most concerned about, even though we have seen sequential improvement as well is on the non-res side.

So, I don't know that I would say that any have surprised or disappointed us in the quarter, but perhaps to a smaller magnitude that's the granularity of how we look at. But overall, we've definitely seen improvement and the reason why not only the comments for the fourth quarter and the full year, but our view -- our early view for 2021. And I'll just stay with that. There's still a lot of uncertainty in the next three months for us. We're really engaged with our teams, with our customers to fully understand what 2021 could bring. But at this point, we see slight growth for 2021.

Deepa Raghavan -- Wells Fargo Security -- Analyst

Got it. Thanks. Bill, given all the cost actions taken this year, should we expect some of your typical annual restructuring of $0.20 worth, should that be lower next year? Or do you think you'd continue it, so you can offset some of the temporary costs that potentially could come back next year?

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

Yes. I think, Deepa, it's a good question. And since everyone's congratulated everybody, but me, I feel like the booby prize is for me here and it looks the way that it is. But I think the cost actions, if you go back to our Investor Day, which feels, Deepa, like a lifetime ago when we were together in New York in the first week of March, our expectation was that there could be some tapering in our restructuring spending starting next year.

So maybe going from $0.40 down to $0.30 maybe. And I think what we've seen is the spending this year, we're trying to keep on track to spend the $0.40 some of the actual footprint work was hard to do with people on furloughs. You don't have the resources in, to get the work done. And some of the dollars were shifted toward good old fashion headcount realignment, which has really quick payoff.

So rather than having that tapering that I think we talked about in March, I would anticipate, and we don't have our operating plan to present to you all yet. We'll do that in January. But I anticipate our restructuring spending to be more flat next year because I think there's some projects for this year that we won't get a chance to finish, and we're going to want to do them anyway because they have really nice returns. And so, I think our spending, we'll kind of probably maintain that, I would think, next year.

Deepa Raghavan -- Wells Fargo Security -- Analyst

Maintain as in $0.40 Similar to this year or $0.20, which is your normalized level, or $0.30, which you said in May. Which one is it?

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

Yes, I'm saying, it's $30 million or $0.40, which is what we're trying to do this year, yes, and maintain that next year, rather than taper back to $0.20 or $0.30, yes.

Deepa Raghavan -- Wells Fargo Security -- Analyst

Got it. Thanks so much.

Operator

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is now open.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Hi, good morning all.

Gerben W. Bakker -- President and Chief Executive Officer

Good morning, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Let me just first echo some of the congratulations out there for Dave and Gerben. And then Bill, I don't want you to feel left out. So really you fought it in.

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

I appreciate it, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

A couple of questions for me, not to put too fine a point on it, but I think the earlier comment on expecting some margin expansion next year. Maybe if I can just get one additional slice on, is that as a function of operating leverage or is that margin expansion in a vacuum kind of before the impact of growth?

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

Yes. No, the growth will be an important part of that, Josh. So that's why I wanted to show you that margin slide, even though it's only for the quarter, I think it's constructive. So, I think the way we get to margin expansion is the red bar on volume decremental slips to green. Some of those cost benefits, T&E and furloughs and temporary actions, stuff like that, that will flip back to red, but the net of those to -- it should be OK, and that leaves you to manage price cost, which was, I think, two of the questionnaires we're getting at, and we agree how important that topic is, as we're at the point of watching materials reinflate here. And as well, as Gerben was highlighting the -- just getting that restructuring benefits of continued projects this year. So, I think that picture is how we accomplish it. But getting volume is a good part of this -- the good important part of the story or at least eliminating the red of the negative on.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. And then just to follow up on, I think Nigel's earlier question on lighting. Maybe broadening a little bit, can you just remind us kind of regardless of anything that happens on the legislative front or on the incentives, what you think the penetration looks like on LED today? And to the extent that we've seen past actions like ARRA, I think, it was like a decade ago, is there anything in there on Buy American that would necessarily advantage Hubbell relative to peers if you were to see kind of the similar kind of shell for climate or energy efficiency based incentives on with a given election outcome?

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

Yes. I think to the first point on penetration, I think we're at a very high level now. We're sort of, I think, in that 85%-ish range of LED is sort of the new norm now, I would say. And in terms of how our supply chain is organized versus other lighting manufacturers, I don't think there's really much advantage or disadvantage to anybody B2B tariffs or any trade policy or Buy American type.

I think we would all benefit if there's a push toward more energy-efficient buildings and more clean buildings and people spending more on components to make the space as we live and work in cleaner and more efficient. I think that would just lead to more component sales and retrofit work. But not -- I don't think of any competitive advantage or disadvantage based on supply chain structure.

Gerben W. Bakker -- President and Chief Executive Officer

Yes. Maybe just a comment to add to that. While the LED penetration certainly has -- is deep, I think an area of growth for this market is lighting controls. And it's hard to make the LED lights that are now in buildings and structures more efficient and more effective. So, that's certainly an area that we're seeing the growth in our own basis.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

I understand. I Appreciate the call. Thanks, guys.

Operator

Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line is now open.

Christopher Glynn -- Oppenheimer -- Analyst

Thanks. Good morning, everyone, and happy 61st days.

David G. Nord -- Executive Chairman

Thanks, Chris.

Christopher Glynn -- Oppenheimer -- Analyst

You had only kind of 59, but I'll be more careful.

David G. Nord -- Executive Chairman

You were there for the first one. So, that's great.

Christopher Glynn -- Oppenheimer -- Analyst

I had a question on your non-res exposure. How are you thinking about the mix of new construction versus maintenance and rental and operating in a downturn, the demand for indoor space, new construction might see some sustained pressure, but maybe the rental maintenance has some tactical tailwinds coming in? I'm just thinking of the range of outcomes, maybe you're contemplating for non-res markets?

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

Yes, Chris, I think if you took our non-res exposure, you can kind of cut it in half. And half of it is lighting commercial -- C&I lighting product, and the other half is wiring and some connector-type of products. So, I think if you were to start with lighting, they've really gone more than 50/50 to the rental side, and there really are some interesting national count drivers of own -- large operators of real estate, think of quick service restaurants or big-box retailers, and they can turn on and off large programs of rental and that can kind of uncouple, I think, from some of the non-res data.

So, there's opportunity in some of that or that to switch on, let's say, specifically, in lighting. On the other C&I products, I think that skews less rental and more new construction. And at the same time, that's -- I think there's still an emphasis on how we sell the product within four, trying to find those rental opportunities and make sure you're getting your share or more than your share of that work either by getting to specifiers, right, being a part of getting specked in rather than just waiting to be plucked off the shelf.

Christopher Glynn -- Oppenheimer -- Analyst

And I had a follow-up on Aclara. You had -- maybe you're up $80 million, $90 million this year. But prior to COVID, I think you were expecting some growth after the tough first quarter comp and backlogs hanging in there. Maybe Utilities adapt a little with COVID on and off the quarter. I mean, could that kind of unleash and kind of put up very nice growth next year, is that a scenario that's reasonable?

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

I'd say it's a possible scenario. I think we'll be able to, and when we give you our outlook in on our next call, we'll be more explicit about what we see there. I think what you're describing is possible.

Gerben W. Bakker -- President and Chief Executive Officer

Yes, and maybe just one other comment to add to that is, clearly, we're seeing the projects move to the right. There is a constraint in labor availability to put all this in. So, I agree, like, Bill, there is definitely growth into next year. And there's a desire by utilities to continue to invest in this area. Limiting factor is how quickly can they put these systems on.

Christopher Glynn -- Oppenheimer -- Analyst

Great. Thanks a lot.

Operator

Your next question comes from the line of Chris Snyder from UBS. Your line is now open.

Chris Snyder -- UBS -- Analyst

Hey, thanks or the time, guy. So, my first question, just following up on the comments just previously around Aclara. So, you guys said you see this as kind of a mid-single-digit secular growth business. And kind of by my math, it's running down double digits this year. So, if you could kind of unpack that maybe like 15%-ish or higher disconnect in terms of what we should expect next year, how much of that do you think has really been pushed to the right? And how much of that is maybe kind of lost or will come on maybe some year post 2021?

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

Yes. I'm describing our couple of years of ownership, where we had some big up years, right? And so, that's combining with this year to get us to mid-singles. And so, I think that when you can get the installers into near buildings, I think you're going to see that return to that level of growth. I absolutely think in our conversation with our customers that the role of smart meters and communication devices and grid monitoring products that Aclara sells are in quite high demand.

And as we're seeing on the component side of our business the utilities where it's in the infrastructure and backbone, and they don't have access issues, they're actually willing to spend to upgrade. So, I think that's taken us to 11:00. And Dan usually comes on at this time and says, please call me and follow-up, and Dan won't be around. So, I'm hoping you can wait a day or two for Dan. If there's something burning that you need to follow-up on, Jay and I will figure out how to get back to you. It just may not be as responsive and cycle time, but appreciate your understanding there.

Jay Penn -- Investor Relations

Well, thank you, everyone, for joining us on the call today. That will conclude today's call. Thank you, operator.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

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

Jay Penn -- Investor Relations

David G. Nord -- Executive Chairman

Gerben W. Bakker -- President and Chief Executive Officer

Jeff Sprague -- Vertical Research -- Analyst

Steve Tusa -- JPMorgan -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Deepa Raghavan -- Wells Fargo Security -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Chris Snyder -- UBS -- Analyst

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