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Hubbell Inc. (NYSE:HUBB)
Q1 2021 Earnings Call
Apr 27, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the First Quarter 2021 results conference call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, speaker Dan Innamorato. Thank you. Please go ahead, sir.

Dan Innamorato -- Senior Director-Investor Relations

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning we issued a press release announcing our results for the first quarter 2021. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our President and CEO, Gerben Bakker; and 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 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 considered incorporated by reference into this call. Additionally, 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 Gerben.

Gerben W. Bakker -- President and Chief Executive Officer

Great. Thanks, Dan, and good morning, everyone, and thank you for joining us to discuss Hubbell's First Quarter Results. I will start my comments on Page 3 with some key takeaways for the quarter. At a high level, we are seeing strong improvement in demand across each of our end markets. And we'll give you some data points around that in the next page and throughout this presentation. Our operating profit and margins expanded in the quarter as we continued to actively manage our cost structure and realize savings from the investments in restructuring initiatives. Our results in the quarter are consistent with the guidance we laid out at the beginning of the year and put us well on the path to achieving our full-year EPS guidance, which we are raising today. We'll walk you through our guidance in more detail later. But overall, we remain confident in our ability to deliver on our commitments.

Let's turn to Page 4 with more details. You see here that our sales were down 1% year-over-year and down 4% on an organic basis. In our Utility Solutions segment, secular growth trends around grid modernization and renewable energy continued to drive strong demand for Hubbell products, and that is reflected in broad-based double-digit order growth in the first quarter across each of our major business segments: Power Systems, Gas Connectors, as well as Aclara. While revenues in the first quarter continued to be impacted by installation delays for certain projects, we anticipate this dynamic will normalize beginning in the second quarter and drive growth as we ramp up our capacities to meet the growing customer demand. Backlog in our shorter cycle T&D components business was up almost 40% year-over-year, exiting the quarter, while the Aclara backlog is back up to approximately $1 billion following a strong first quarter with over $200 million of orders. In our Electrical Solution segment, markets continue to improve as orders turned positive year-over-year and we realized solid sequential growth in revenues in the first quarter. Light industrial markets are strengthening as the broader industrial economy recovers. A positive sign for Hubbell that demand for electrical products and solutions will drive growth over the balance of this year.

Our backlog across the Electrical Solutions was up more than 30% year-over-year, exiting the first quarter. And our focus over the near term is to continue managing through a tight supply chain environment to serve the critical infrastructure needs of our customers. In terms of our operations, we achieved 30 basis points expansion in our operating margins in the first quarter, as we overcame lower volumes and the impact of price cost turn into a headwind as we absorb significant commodity inflation on our cost base. We recognized and anticipated this toward the end of last year and took early actions to address it through price and productivity. However, inflationary pressures have continued to accelerate through the first quarter which necessitated and drove additional pricing actions. And we'll continue to take further actions, while this inflation persists. Over the last six months, we have implemented price increases which have led [Phonetics] most of our markets in frequency, pace, and magnitude, and we'll continue to utilize the strength of our product portfolio to drive profitable growth. While commodity inflation remains a moving target, we've contemplated a range of scenarios within our guidance and have levers at our disposal to effectively manage our operations and deliver on our near-term and long-term commitments. You also see here that we delivered a $1.72 of adjusted earnings per share in the quarter and $39 million of free cash flow. And I will turn it over to Bill in a minute to give you some more context around those results, but before I do that, I wanted to highlight a few key accomplishments for us in the quarter. First of all, Hubbell is very honored to have been named one of 2021's World's Most Ethical Companies by Ethisphere and I'd like to thank our over 19,000 employees who have demonstrated the highest standard for integrity, each and every day, and note that this achievement is a recognition of their commitment to compliance and ethics as a foundation of our strategy and culture. I'd also like to highlight that Hubbell recently received two major awards from one of our top distributor partners, out of only three given annually. Our Gas Connectors business received the top award for sales and marketing, while Power Systems received the award for above and beyond service excellence. Both of these awards are recognitions of the strength of our brand and the quality and reliability of our products in the marketplace. They demonstrated our commitment to service, which is a key differentiator for Hubbell, particularly in recent years as our Utility franchise had been so effective in serving our customers' needs to increase storm activity. And finally, we closed the acquisition of Beckwith in the fourth quarter and I wanted to congratulate the leader of that business for being recently elected to the National Academy of Engineering for his contributions to digital protection and control devices for the grid. This is a recognition of the strength of Beckwith's Technology Solutions and a testament to the talented people that joined Hubbell as part of acquisitions, which we are confident will drive further innovation and differentiation.

With that, let me turn it over to Bill to walk you through the financial results in a little more detail.

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

Thanks, Gerben. Good morning, everybody. I realize how busy the release schedule is today and I appreciate you being with us. I'm going to start my comments on Page 5. You see the sales down 1% to a $1.078 billion. That figure includes the three acquisitions that we closed in the fourth quarter and it's good news for us to see all three of those investments off to a very strong start. Just to remind everybody, on the electrical side, we made an investment in the 5G space, antenna, and housings for that space. On the Utility side, Gerben just mentioned Beckwith, which is a Controls business, and Armorcast which makes enclosures for utilities. All three, high-growth, high-margin areas, and happy to see them being well accepted by customers and off to good starts and contributing to our performance in the first quarter. Also, as Gerben noted, a clear inflection point in orders for us where we had orders up double digits and strong feeling like strong demand ahead of us, leading to expectation for stronger sales. On the OP side, you'll see 30 basis points of margin expansion. And there was some headwinds that we overcame there. Starting with the headwinds from the sales decline, on the organic side, the price cost lag that we experienced. And the new acquisitions, early in their integration phase, tend to perform at less than their fully integrated margins, and so you tend to get a little drag from that. So, the 30 basis points of expansion overcame those, really using productivity gains as well as, importantly, restructuring benefits. Those benefits from restructuring came really from both sides of the restructuring program, namely savings from dollars we invested last year as well as the tapering spending level that we had communicated to everybody. So, those contributions helped us pick up those 30 basis points you see. EPS expanding 5% to $1.72. Besides the increase in operating profit, there were also some tailwinds from the non-OP side, including from pension expense as well as from the effective tax rate down to about 22.6%. On the free cash flow side, you see $39 million generated in the quarter. Compares unfavorably to last year, but we have a significantly different mindset. At the end of March, last year, we were stopping with both feet on the brakes on the inventory side; this year we're feeling that order expansion -- we're looking to invest in the working capital to help grow the Company. So that $39 million is in line with our full-year target of getting to $500 million and has the same seasonal shape that we had in 2019.

Just -- and thinking about talking about the balance sheet. I also wanted to mention our bond refinancing that we executed in the quarter. We had $300 million of bonds maturing in 2022. They were paying an interest rate of 3.65% and it became clear to us that fixed-income investors were starting to demand higher interest rates as they saw inflation coming in the effects of stimulus, and to get ahead of that, we were able to execute on some new bonds at 2.3%, so a saving of over 130 basis points. There is a slight anomaly in crossing the quarter-end because those -- the new bonds price, the end of March. And then, the old bonds were not called until first week in April. So, those of you who look at the Q, you'll see both bonds still outstanding and the cash kind of on the hand, and then, as a subsequent event and in the second quarter you will see that we bought out deal bonds and we'll pay the make-whole there. So, a good opportunity for us to get our interest rate fixed for the next 10 years at 2.3%, which we're quite pleased with that execution. So, I think the big takeaway from Page 5 is twofold: one is clear evidence that the recovery is under way, attractive orders expansion. And secondly, that the self-help window continues to contribute to Hubbell's performance in the form of programmatic acquisitions as well as a restructuring program that continues to help drive performance as we go forward. Next two pages, like to unpack between our two segments Electrical and Utility. We talked to you before about reorganizing the segments. And specifically, having the Electrical Solutions' segment really run as one business and our attempt is to replicate when Gerben was running Power and how he turned all those different brands into a really a single operating segment and Pete Lau is going to help us do the same on the electrical side now. The other implication is we have built up our acquisition over the last couple of years, a gas distribution components business that had been in electrical, and starting now in the new year because it's customers on the utility side and in front of the meter. We've got that business now located inside the utility, and so, the first quarter has been adjusted for that change to make these two periods comparable on both sides. So, starting with Electrical here, on Page 6, you will see sales down 3% to $546 million. Two important signs of recovery for the Electrical Solutions segments: first is the sequential growth from the fourth quarter to the first. That normal seasonal pattern is for a contraction of about a point or two. And in this period, it grew 5% from the fourth quarter. So, a clear sign that there is some recovery under way there. Second was that the order rate was up year-over-year. And so, that's -- I think pertains good news going forward for the Electrical segment.

As we reorganized inside of industrial, we have the light vertical and we're really seeing that responding the quickest and soonest, not unusual for a recovery period. The heavy industrial responds a little bit later. And we're starting to see some of the early indicators showing heavy, having signs of improvement ahead of it. The non-res side remains soft inside of non-res. We still have our commercial and industrial lighting business. They had a 7% decline, which is contributing to that softness in non-res. On the resi side, we saw markets being quite strong, in particular, on the single-family side. So, there continues to be demand as people are looking to get out of multifamily into single-family solutions. On the Operating Profit side, you'll see 30 basis points margin expansion. The same story for the Enterprise, namely the headwinds of -- from the lower volumes and the price cost drag, I was overcome by the productivity and expense management, as well as the benefits from the restructuring program.

Page 7. We've got the Utility Solutions segment. And you see a -- and again, reminding everyone this now includes gas components. I mean, you see a 1% increase in sales to $532 million. We've really got to unpack that to tell the story. So, you see that legacy Hubbell Power Systems business, but what we see as components on here, up 6%. So, we continue to see grid hardening, driving the distribution spending. The renewables, most notably solar and wind, causing transmission spending to grow, and right now, that renewable trend is causing transmission to outgrow distribution right now. And we'll talk about that a little bit more later. On the Aclara side, you see down 8%. They continue to have access issues with COVID. We're anticipating that that frees up now in the second quarter and they start to grow. Gerben made comments about their order pattern and orders across the Utility space were really impressive in the first quarter. We had double digits on the Power Systems businesses, double digits in gas, in components, and double digits in Aclara from terms of order generation. So, I think signs of good future growth and visibility for our Utility Solutions segment. And as well you see margin expansion there. Again, similar story of lower organic volume, headwinds, and price cost headwinds being overcome by the productivity and expense management.

I wanted to highlight on page 8, the Renewables vertical and the Wind and Solar business that we feel has a real secular megatrend type growth rates anticipated. The industry -- energy industry clearly pivoting from fossil fuels to renewables. And we think Hubbell benefit as the economy continues to adapt to that. Positioned really well in two different ways: we've got about $350 million or so of transmission sales, and right now, the renewables are requiring -- are harvesting wind and sun in places that are farther from the population centers and that energy needs to be transported across the transmission lines to get to where it will be consumed by users. And that will be quite a favorable trend for the components we sell, the transmission grid as well. On the Electrical Solution side, we see a variety of products, brands notably of Burndy and Wiley, that are selling lugs and connectors, bonding and grounding products, wire management. And we've had a couple of wins recently on very large solar and wind farms that make us believe our brands and our products are in high demand and we are anticipating strong growth rates going forward off of that $50 million base that we have.

So I think, a very positive story for for a megatrend and one where Hubbell, I'd think, is very, very well positioned to serve our customers with high-quality solutions. We've also talked about the drag from price cost and I wanted to just illustrate the price cost relationship as our business model dictates it and we've shared some data over the last 13 years or so, here. And we don't use derivatives as a hedge against inflation, we use price. We think that's a better -- it's a better mechanism because it lets you actually get ahead. The downside of it is, it can create a lag of a quarter or two between when we experience inflation and when we realize on the price and that lag can sometimes create some margin distortions inside of the quarter. But it's important to show you all that through the cycle, we net out net positive. In this period, there has been four interesting phases of spikes, which you see in the yellow line, and in each case, we've been able to capture the price and as soon as those costs flatten, and in fact, they seem to always turn down after they've spiked, that's when when the lag reverses itself and we start to harvest some margin. So, just wanted to make sure we were clear with showing you that we've experienced, really, from later in 2020 through the first quarter, a spike of quite significant magnitude. That really is a composite for us. We're buying a lot of steel, but also, that's the largest component, but it's also copper, aluminum, resins. And this has been a very significant spike compared to the last decade, or so. But, as Gerben had mentioned, we've been actively pricing for it, have a very dynamic dialog with our customers and have been pulling price in some areas, multiple times through 2021. And we will create that blue curve that gets ahead of this price-cost, and we anticipate we can start to catch up in the second half of this year. But the second quarter, I think will still be -- still be a headwind for us.

So with that discussion, I wanted to hand it back to Gerben to give you more feedback on our outlook.

Gerben W. Bakker -- President and Chief Executive Officer

Great. Let's turn to Page 10 and starting with the end market pie chart on the left. With the first quarter behind us and increasing visibility on an economic recovery, our markets overall are trending ahead of expectations that we had at the beginning of the year. Particularly, we see industrial markets performing better, driven by strengthening light industrial verticals. We see strong order growth in the Power Systems and Gas Connectors businesses in the first quarter and we also see our Utility T&D components market performing ahead of our initial expectations. And while our expectation for non-residential markets remain more subdued than our other end markets, we here see steadily improving markets and believe we could start to see some recovery toward the latter half of the year. We now expect full-year sales growth of 8% to 10%, with acquisition still expected to contribute 3% and organic growth now contributing 5% to 7%. This increase of 2 percentage points versus our prior expectations is driven by stronger volumes as well as incremental price to address higher inflationary headwinds, which Bill just gave some color on. On net, we are raising our full-year adjusted earnings per share outlook to a range of $8.20 to $8.60, which represents double-digit EPS growth at the midpoint of our guidance range, along with 110% free cash flow conversion on our adjusted net income.

Turning to Page 11, I'll give you some more context for our guidance. You see a solid contribution from increased volumes as our expectations for market growth are higher than our initial outlook. We're also getting strong contributions from two key drivers of our financial models in acquisitions and restructuring, both of which are under our control and tend to be more programmatic and consistent in nature. On acquisitions, we continue to expect about $0.25 of contributions from the three deals that we closed at the end of 2020, each of which is performing well early on. On restructuring, we continue to make good progress in driving cost savings with an incremental $15 million to $20 million of savings flowing through this year and continued savings moving forward, even as we begin to taper investment from the elevated levels of the last two years. We'd highlight here that while we've invested in R&R consistent with the expectations we laid out over a year ago on our Investor Day, we've over-driven on savings, which has been a key contributor to operating margin resilience. As our markets recover and our volumes ramp back up, we'll be able to drive sustainably higher margins performance across the company with a more efficient operating footprint.

Then, as Bill walked you through earlier, we remain confident in our ability to manage price material and we'll continue to drive this to a net favorable outcome over the cycle. We're taking aggressive pricing actions, with further actions to come, though, price capture tends to lag commodity inflation by a quarter or two. And we continue to expect price material to be a net headwind for '21, consistent with our prior guidance. And finally, we will also see an impact from the return of some temporary cost benefits, particularly in the second quarter, as we lap the impact of compensation reduction actions we took last year in preparation for the pandemic. Recall that in 2020, we managed the decremental margins of approximately 15% as we aggressively controlled our cost structure and drove productivity. As our markets now begin to recover, however, we plan on investing back into our business over the balance of 2021 to accelerate future growth, particularly in attractive areas such as the renewable markets -- Bill just spoke about, along with the significant opportunity we see for Hubbell in distribution automation, which we highlighted on our call last February. All of this adds up to our full-year earnings per share guidance of $8.20 to $8.60. We remain confident in our ability to deliver on these commitments and are focused on returning to growth as we serve the critical infrastructure needs of our customers while continuing to actively manage our cost and deliver value for our shareholders.

With that, let me now turn it over to Q&A.

Questions and Answers:

Operator

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

Jeff Sprague -- Vertical Research -- Analyst

Thank you. Good morning, everybody.

Gerben W. Bakker -- President and Chief Executive Officer

Good morning, Jeff.

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

Good morning, Jeff.

Jeff Sprague -- Vertical Research -- Analyst

Morning. Hey, just maybe first on price cost. Thanks for all that additional detail on the chart. Just to have a little bit better understanding of what you're expecting. Obviously, price cost was negative in Q1, it's going to be negative in Q2, do you actually see it turning positive in the second half of the year? I understand you're saying negative for the whole year, but do you see the second half of the year flipping back into positive territory?

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

Yeah, I think we do, Jeff. A lot of that depends on that yellow curve flattening at some point during this year, but that would be our expectation. And if that happens, then we -- then we could catch up and start to eat into the lag, yeah.

Jeff Sprague -- Vertical Research -- Analyst

And you pointed out that you've been kind of leading price up. Are you seeing kind of the competitive response be rational as it relates to that or any kind of kind of push back from the end customer standpoint in terms of being able to absorb pricing?

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

Yeah, I'd say, broadly speaking, it's been an understanding channel. And I think in all walks of everyone's life, they're seeing prices increase. And we'll get to bigger numbers in the second quarter and so it keeps -- we keep pushing into that, Jeff. But so far, the channel understands and the end-user understands, but it feels like that yellow spike is pretty steep right now relative to the last decade of activity or so. And so, that's watching everybody react to that. It will continue to be something we study very closely.

Gerben W. Bakker -- President and Chief Executive Officer

And maybe, I'll add a couple of comments to that, Jeff, is -- one is, Bill talked about the curve of that Incline is so steep so while in many instances, we're leading the price, we see quick follow-ons. On -- the other sign that is encouraging is that our stick rate of price increases is actually running ahead of what it would historically do for our business. And I can speak even going back a few years when I ran the Power business and I think it was in the 2018 timeframe when we saw commodities go up and we saw tariffs go up, and our approach was perhaps a little more cautious and hesitant with those customers. We are, currently, it's April and we're going on our third price increase in the Utility business, so it's just a sign of how we've learned and how we're going much more aggressively after when we see commodities go up that we -- that we go up with price.

Jeff Sprague -- Vertical Research -- Analyst

And maybe just one other one for me. Just thinking about -- so you managed the positive margins despite price cost. It gets a little tougher in Q2, I guess, but I would imagine you get some help on the M&A? How are you thinking about margins in Q2? So, a kind of a fight to hold them flat or is flat actually ambitious, do you think?

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

Yeah, I think flat would be ambitious. So, I think the simple way we're looking at it, Jeff, is, volume and restructuring are going to give us a decent tailwind. But price cost is going to kind of continue at the same drag rate, percentage wise, in second quarter, and then we get as well, really the absence of the furlough. So, all the cost management initiatives that were sort of temporary, roll back, and I think that gives us a temporary margin headwind in 2Q, Jeff.

Jeff Sprague -- Vertical Research -- Analyst

Yeah, understood. Makes sense. All right, thanks a lot guys. Appreciate it.

Operator

Your next question comes from the line of Steve Tusa with JP Morgan. Your line is open.

Steve Tusa -- JPMorgan -- Analyst

Hello?

Gerben W. Bakker -- President and Chief Executive Officer

[Speech Overlap] Hey, Steve. We can hear you.

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

Yes, hey, good morning.

Steve Tusa -- JPMorgan -- Analyst

Thanks. Sorry. Thought I did something wrong there for a second, getting the silent treatment. The non-res outlook that you're seeing out there, the activity, I mean some companies that have reported so far a vaccine [Phonetics] had some pretty good results when it comes to their non-res business. Obviously, the data remains reasonably weak. I mean, what are you guys seeing out there when it comes to US non-res when you think about it from the difference between kind of like the core commercial side, and then maybe, institutional?

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

Yeah, we changed our outlook up a little, Steve. We still have it down. I think maybe one of the elements that continues to color us is half of our non-res is commercial industrial lighting. And they had a first-quarter, you know, a kind of down 7%, so that kind of weighs a little bit. But the outlook, which is I think your -- the emphasis of your question, does feel better than when we started the year. And the other kind of commercial products are showing some order patterns that would suggest some good firming. So, for us, it's a little bit mixed, I think because of that.

Steve Tusa -- JPMorgan -- Analyst

Got it. Okay. And then, just the outlook for the T&D side?

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

Yes. So, I think we continue to see strong growth despite having a first quarter compare in Power that was actually impressive, last year. And we see the demand really pulling through. I think the drivers are pretty solid, namely. I mean you've got grid hardening against environmental problems, you've got this renewable trend, and you've got just an aging infrastructure that needs to be updated. And so, we continue to see a pretty healthy demand there and have a pretty positive outlook for that.

Steve Tusa -- JPMorgan -- Analyst

Got it. Okay, thanks a lot. I appreciate it.

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

Thank you, Steve.

Operator

Your next question comes from the line of Tommy Moll with Stephens. Your line is open.

Tommy Moll -- Stephens -- Analyst

Good morning, and thanks for taking my questions.

Gerben W. Bakker -- President and Chief Executive Officer

Good morning, Tom.

Tommy Moll -- Stephens -- Analyst

Gerben, I wanted to start on Aclara, maybe make sure I heard a couple of these data points correctly. I think you said you booked about $200 million of orders in the first quarter, and that revenue should be up, starting in the second quarter. But then, more broadly, I'm just curious what anecdotes you could share? Does it feel like planning is back to business as usual for customers there? Or is there still some hesitancy? I mean the $200 million number was an impressive one. I'm just trying to think about if there is any continuing headwind to customer planning? And is -- if you run all that through, is mid-singles, on the revenue side, still the right way to frame up the full year? I know that was a multi-part [Speech Overlap], but thank you.

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

Yeah, no, no. Tommy, let me respond to some of the financial questions, and then Gerben will talk on the operating side a little bit. So, $200 million of bookings, we thought was good as well against essentially a $600 million revenue base, that looks like a pretty strong situation there. Backlog, which we report on to you all periodically is up at a $1 billion. Again, relative to a $600 million revenue base, you've got a year-and-a-half's worth of visibility there. So, that all feels good. And maybe, I'll let Gerben comment a little more on the access issue and how we see that evolving.

Gerben W. Bakker -- President and Chief Executive Officer

Yeah. And if we just look from the order and activity -- market activity perspective, the underlying fundamentals are still very much there for growth, right? The project planning is there. So, it comes down to what you alluded to, is during the pandemic, how are we managing through quoting these big project, working with utilities through to spec them [Phonetics], and those take time. So I think, what you see here in the first quarter is a little bit the effect of projects that we're working through, even pre-pandemic, with our utility customers that we've continued to work through that are now coming through in orders. We talked earlier about the dip we saw when the pandemic happened in our proposal and quote activity. So, I think those we'll start to see coming back later. So, there's definitely demand out there. We're now seeing more activity back and taken up these project, but there is a lag of timing, isn't it?

And as we've also talked about, this tends to be lumpy. So, I certainly wouldn't take the $200 million for a quarter and multiply that by every future quarter, but I will say, we're continuing to be positive on this space. And again, your bottom line, I think of mid-single growth is very much what -- what we see in this business.

Tommy Moll -- Stephens -- Analyst

Great. Thank you. That's all helpful. As a follow-up, I wanted to talk about the disruptive storms in Texas earlier this year, and maybe, you could just share any anecdotes, observations you have, anecdotes you can share from customers on the utility side of the business. If -- the world's attention was focused there, or certainly within the US, attention was focused there, and specifically, your customers. Is there any takeaway there in terms of the fundamentals, many potential tailwinds you might see in Texas, or elsewhere just seeing what took place there?

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

Yeah, I think, Tommy, you're right that if you look at the utility side, these environmental challenges continue to place a valuable premium in the eyes of utilities on grid hardening and making sure they can operate, whether it's through wind, or ice, or in this case, unexpected real freezing in Texas. And so, I do think, ultimately, it reinforces the value proposition of grid hardening. And I think that's -- I think that's to Hubbell's benefit. I think if you go on the industrial side, you know, the resin supply side, it seems to us went through a challenge with the freezing there. And that's kind of disrupted their supply chain a little bit. And so, I think between the Utility, maybe a favorable impact on the industrial side. With that, that resin production being disrupted, I think that's to the negative.

Tommy Moll -- Stephens -- Analyst

Great. Thank you, Bill. I'll turn it back.

Operator

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

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Hey, good morning, Gerben. Good morning, Bill. How're you [Speech Overlap]

Gerben W. Bakker -- President and Chief Executive Officer

Hey, good morning.

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

Good morning, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Just to maybe ask the margin question with a little bit finer point on it, since there's a lot of moving pieces. When do you expect to get to kind of normal incremental margins again? It sounds by 2Q, definitely not, since margins might be flat to down year-over-year. But is it more third quarter, or -- are we really talking about next year because you have the temporary costs, you have some of the price cost actions and investments. Just trying to put all those pieces together when folks should start to expect kind of normal operating leverage start to filter into business again.

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

Yeah, Josh. I think our view, it would be fourth quarter and then into next year. Once you get -- Gerben kind of described the aggressive pull of price that we've made. So, you sort of really need that to flatten out and if it even were to come down, as some of that spikey activity suggests it could, then you start to actually get some supernormal activity because you're actually getting kind of tailwind. But I think it's -- you are talking ultimately about fourth quarter and into next year.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That's helpful. And then, I understand where we still have some bottlenecks on the acquire side, or I guess, communications controls, now. How fast can that business really grow when you folks are able to -- gotten -- field [Phonetics] new installations, again? I would imagine there's a labor component, like can this business grow double-digits when we're out in the wild again? Or are there kind of bottlenecks that say that $1 billion of backlog could take a while to get out of the way?

Gerben W. Bakker -- President and Chief Executive Officer

Yeah, I think if -- I mean if you just put it in perspective, what we talked about before that, we think it's mid-single-digit growth. But even if you look at the first quarter that it's still down, if you just do that math, you're in that range, what you just talked about of around to double-digit growth. It is a lot of labor and I talked about that in the last call that that's not an unlimited resource and that it's quite challenging as a matter of fact right now. So, I would say that's probably the biggest constraint. But yeah, I -- we definitely expect a ramp up even in the second quarter from that business.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That's helpful. I'm just going to try to squeeze one more in. I really appreciate Slide 9 there, Bill, with that price material spread. Hard not to notice that gap was superwide over the past couple of years. Is there some sort of philosophical change in pricing behavior or strategy that you guys have had that could instill kind of a wider range once we normalize here on the material side?

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

Yeah, I think Gerben made some reference to that period when tariffs were pushing the spike up and there may have been a little bit of caution on the part of our sales and customer service teams. And there is a lot to this -- this pricing actions, right? There -- there's -- it starts with the brand quality and standing for quality. It continues to service levels, it extends further to customer relationships, and communication with customers, because ultimately, we're implementing a price increase that goes through a distributor to the user. So, we need kind of this two-step coordination. And I do think, perhaps, that 18-period, that Gerben had referenced, maybe made that dynamic, function a little bit more smoothly that's allowing us to be a little more aggressive during this spike, I would say.

Gerben W. Bakker -- President and Chief Executive Officer

Yeah, maybe just to add to that. I would also say that one of the things that we continue to invest and work on is the discipline around the analytics of pricing in the organization around our pricing discipline with people that solely focus on pricing. So, I think it's a combination of just learning from the past, being a little more aggressive, and having better tools to manage this.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Great. That's helpful. That's all guys.

Operator

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

Chris Snyder -- UBS -- Analyst

Thank you. So I guess, starting with the updated guidance. If I take the midpoint on the raise, it embeds just around high-single-digit margins on the incremental, 200 bps of topline, if my math is right. So is this all just more challenging price cost relative to the Q4 guidance or are there other headwinds here, potentially? [Speech Overlap] I mean, our installation ramp or just did Q1 come in softer than maybe you guys thought, weighing down the full year?

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

No, Chris. I think you're putting your finger on the math the right way, which is if you've got a point of -- extra point of price and all that does is offset cost, it puts a -- it alters the incremental math, which is what you're pointing out.

Chris Snyder -- UBS -- Analyst

Okay. Appreciate that. Then I guess, just following up on that point. So, of the 200 bps organic growth guidance, would you have the separate volume and price? As it does seem like the pricing increases have been more meaningful than maybe [Speech Overlap] on the Q4 call?

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

Yeah, that's about half and half, I'd say could attribute 1 point of the rise to price and the other to volume.

Chris Snyder -- UBS -- Analyst

Thank you.

Gerben W. Bakker -- President and Chief Executive Officer

Right.

Operator

And your next question comes from the line of Justin Bergner with G. Research. Your line is open.

Justin Bergner -- Gabelli Research -- Analyst

Hi. Good morning.

Gerben W. Bakker -- President and Chief Executive Officer

Good morning.

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

Good morning.

Justin Bergner -- Gabelli Research -- Analyst

Thanks for taking my question. Questions are, Gerben and Bill, I guess, first off, the infrastructure bill that was just proposed, how do you see the framework in the numbers potentially increasing or extending the T&D cycle?

Gerben W. Bakker -- President and Chief Executive Officer

Yeah [Speech Overlap] go ahead.

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

I was just going to say, I mean, I think that it can affect both halves of our business in front of the meter and behind the meter. I think it suggests there would be investment in buildings to make them more efficient. But certainly, on the front of the meter, seems to be a lot of intention to promote renewable energy, and as we said, I think that really benefits us on the transmission side. And it's not exactly clear to us when some of this spending really starts. If it's the middle of next year, that almost feels optimistic. So, the flavor of the stimulus seems -- we seem to be well poised to benefit from, but I'm not sure I have great visibility as to when that would start to benefit us.

Gerben W. Bakker -- President and Chief Executive Officer

Yeah. And then, maybe, just to add, because -- the clear one that everybody sees is the renewables, and that clearly is positive for our Utility vision. But as Bill alluded to, right, there is proposals to invest in the telecom infrastructure, there's proposals to invest in transportation and roads, and we play in those verticals as well, whether it's with our enclosures business for fiber installations or with our grounding and connectors, and products that we use for rail and roads. So, it's a net positive for us, it's more as Bill alluded to is, what's the timing around the spend.

Justin Bergner -- Gabelli Research -- Analyst

Okay, that's helpful. And then one other, just big picture question. I mean, you did a few acquisitions at the end of last year and they seem to be tracking well. How do you view the M&A landscape as you look throughout the rest of 2021? Obviously, you may see some tax code changes, valuations are expensive. What are sort of the puts and takes and how does -- eager does that make you to do more deals this year?

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

Yeah, I think our enthusiasm is driven by a couple of things. I think one is where we might have a white spot in our offering, where we can extend our brands, the growth rate in the vertical, the margin potential. And I do agree with you that prices in multiples can start to look like an inhibitor if especially if you get into areas, maybe, like software and it seems to -- larger transactions seem to have a larger multiple associated with them. But an average Hubbell deal, which is about $50 million in size, our business development teams continue to be quite hopeful, and are in active dialog with a pretty robust pipeline of appropriately multipled and valued situations that can extend our franchise. So, I would hope that we can continue to do a programmatic level of acquisition investing, year in and year out, at reasonable valuations that ultimately will contribute quite a bit of value to our shareholders [Technical Issue] Even though I do agree, there is some priciness in certain places, I think we still have our eyes on some appropriate targets.

Justin Bergner -- Gabelli Research -- Analyst

Great. Thank you.

Operator

All right. There are no further questions at this time, I'd like to turn the call back over to the presenters for their final remarks.

Dan Innamorato -- Senior Director-Investor Relations

All right. Thanks, operator. Thank you, everyone, for joining us. I'll be around for questions the rest of the day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Dan Innamorato -- Senior Director-Investor Relations

Gerben W. Bakker -- President and Chief Executive Officer

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

Jeff Sprague -- Vertical Research -- Analyst

Steve Tusa -- JPMorgan -- Analyst

Tommy Moll -- Stephens -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Chris Snyder -- UBS -- Analyst

Justin Bergner -- Gabelli Research -- Analyst

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