HUBBELL INC. CL 'B' (HUBB) Q4 2021 Earnings Call Transcript

HUBBELL INC. CL 'B' (HUBB 0.93%)
Q4 2021 Earnings Call
Feb 03, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day. Thank you for standing by, and welcome to the fourth quarter Hubbell 2021 results call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would like to hand the conference over to Dan Innamorato.

Thank you. Please go ahead.

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 fourth quarter 2021. The press release and slides are posted at the investors section of our website at hubbell.com.

I'm joined today by our chairman, president, and CEO, Gerben Bakker, and our executive vice president and CFO, Bill Sperry. Please note 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 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. Before we get started, we also want to highlight that all results in our press release and the materials for this call are presented on a continuing operations basis, excluding the financial impact of our C&I lighting business, following the recent closing of that divestiture and the classification of C&I lighting as discontinued operations. We've also recast prior period financial results on a continuing operations basis to ensure we're presenting the most relevant year-over-year comparisons and baseline for future results. These recast financials are summarized in this morning's press release.

Now, let me turn the call over to Gerben.

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Great. Thanks, Dan, and good morning, everyone. And thank you for joining us to discuss Hubbell's fourth quarter and full year results. As you saw from our press release, we achieved a strong finish to 2021 with solid operating results in the quarter.

The performance of our core continuing operations in the fourth quarter exceeded our expectations, which were embedded in our most recent outlook a few months ago. Most notably, our electrical solutions segment drove exceptional performance, with close to 50% year over year growth in adjusted operating profit in the fourth quarter. Demand remains strong for utility and electrical solutions. We grew backlog further in the third quarter as orders continue to outpace increased shipments, particularly in our Utility segment.

For the full year 2021, we grew orders more than 30% year over year, and are exiting the year with a record backlog. While we expect supply chain dynamics to remain tight and continue to constrain output into 2022, we are confident that grid modernization and electrification are secular trends, which will drive attractive GDP plus growth over the next several years. And we will talk more about our unique positioning and the investments we are making. From an operational standpoint, I am also pleased to highlight we turned the corner on price material in the fourth quarter.

We achieved 11 points of price realization, which fully offset the impact of material cost inflation on a dollar-for-dollar basis. Though material inflation has been an accelerating headwind throughout 2021, we have been proactive and aggressive in our pricing actions, which have stepped up significantly as we have progressed through the year, and this sets us up well to turn this equation into a net tailwind in 2022. Finally, we are providing our initial 2022 outlook this morning, which anticipates strong double-digit adjusted earnings-per-share growth. We will talk about the outlook in more detail at the end of this presentation, but we expect continued strength in customer demand and significant price material tailwind to enable Hubbell to continue to navigate through a challenging supply chain environment, while investing in our business to better serve our customers, all while continuing to drive strong financial results for our shareholders.

We thought it would be helpful to give a brief update on our portfolio and strategy following the divestiture of C&I lighting. What we have achieved with this strategic action is a more focused portfolio with leading positions across the energy infrastructure in front of the meter, behind the meter and at the edge. Strategically, we are focused on providing our customers with reliable and efficient critical infrastructure solutions in markets with higher growth and margin characteristics, where we have a unique right to play and ability to win. Note that we have broken out the electrical solutions segment for you to provide more context on our product offering and market exposure, highlighting the depth and breadth of our electrical offerings across the industrial, nonresidential and residential markets.

However, as we announced over a year ago, we now manage this segment as a unified business to more effectively utilize the combined strength of our brands products and organizational talent in order to better serve our customers. This integration has been highly successful, and you will see some of the early returns on this strategy when we take you through the electrical solutions results. In the utility solutions segment, we continue to believe that we have a best-in-class franchise with two highly complementary businesses. Our leading position across components, communications and controls enables us to offer uniquely differentiated solutions to our customers across electric, water and gas applications.

Utility solutions now represents over half our total enterprise sales following the divestiture of C&I lighting. We are very pleased with the evolution of our portfolio, and we believe these actions position Hubbell well for the long term. We continue to view portfolio management as an ongoing process and an important lever to drive value for our customers, employees and shareholders. Hubbell has a proven track record of effective capital deployment, and we expect to continue to deliver attractive returns to our M&A model.

Now, building off the portfolio discussion, we also wanted to highlight the importance of ESG to our strategy. Hubbell has made significant progress on ESG over the past year, increasing our disclosures, as well as setting multiyear targets for improvements on key metrics. We released our inaugural sustainability report in late 2021, and we encourage all of our stakeholders to view this report on the sustainability section of our website and to continue to actively engage with the Hubbell leadership team on ESG topics. ESG at Hubbell is directly aligned to our business strategy.

In our utility solutions business, our products are critical to ensuring that electricity is transmitted and distributed safely, reliably and efficiently throughout the grid. As the leading utility T&D component supplier, we play a critical role in bolstering the resilience of the grid, as well as in hardening the infrastructure to withstand the impact of climate events and enabling the transition to clean renewable energy. Our unique combination of utility components, communications and controls also enables us to play a leading role in making the utility infrastructure smarter across electric, water and gas applications. In our electrical solutions segment, we provide solutions that enable the owners and operators of critical infrastructure to reliably and efficiently utilize electricity.

These solutions are serving increasingly diversified end markets as electrification drives more applications to be plugged into the grid. Electrical T&D utility automation and controls, renewables, data communication and electric transportation are among our most attractive market verticals currently and we see significant opportunity to drive further value for our customers and shareholders in these areas. When we talk about orienting our portfolio toward high-growth, high-margin verticals, these are the areas of our portfolio where we see the most opportunity and return on invested capital. And for these reasons, we are stepping up our investment levels in 2022.

Reinvigorating our innovation strategy is a key priority for Hubbell, but we plan to innovate while sticking to our roots and evaluating opportunities to our lens of where we have a clear right to play and ability to win. For instance, it has become increasingly clear to us over the past several years that our power T&D components business has transitioned from a GDP grower to sustainable GDP plus trajectory, and we are investing in additional capacity in key product categories in that business to effectively serve strong and visible customer demand. We've also driven substantial recent growth in our electrical connection and bonding offering for solar, telecom, and data center applications, and we are investing in additional sales and engineering resources there to more effectively pursue those opportunities. We are confident that we can accomplish this while continuing to deliver attractive and differentiated earnings growth over the near and long term.

And with that, let me now turn it over to Bill to walk you through our near-term financial results and outlook. Bill?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Thanks a lot, Gerben, and good morning, everybody. Appreciate you joining us. I'm going to use the slides to guide my comments, and I hope you found those. I'm going to be starting on page six, which takes the fourth quarter results for us on a continuing operations basis.

I'll make some comments when we get to the full year on how discontinued operations contributed so that we can see things on the same format that we started the year on. But you see the fourth quarter results showed impressive sales growth of 20% to $1.1 billion. That 20% is comprised of 4% acquisitions and 16% organic. The 16% organic is comprised of 11 points of price and 5% growth from unit volume.

So a very healthy amount of growth. I think commenting on the acquisition growth of four points. There were three specific acquisitions that contributed to that in the fourth quarter. One on the electrical segment side.

Two, on the utility side. On the electrical side, we had invested in a business that makes the mounts and enclosures and antennas for some of the new telecom technology rollout, some of the 5G product exposed to education and healthcare and warehouses, some verticals that we liked. We also bought an Enclosures business in the utility area that makes enclosures at street level and pedestal level, that electric and telecom utilities put a lot of their electronics in. And the third was in distribution automation area, where we're controlling and protecting infrastructure.

And all three of those businesses exhibiting high margin and high growth. So some of those, we invested just about $235 million in those. And so, I'm spending some time illustrating those because I think it's important that we compare that to thinking about our portfolio changes as we just, this week, closed on the sale of C&I lighting and thinking about bringing in these higher-margin, higher growth businesses for and swapping out that more challenged, lower growth, lower margin businesses, something that we're happy to keep continuing, as Gerben mentioned, in our M&A strategy. We'll talk more about the five volume points on the next couple of pages when we talk about the two different segments.

But in general, despite the impressive year-over-year growth of the 20%, it's also good news, I think, sequentially compared to the third quarter, we saw an increase. And usually, typical seasonality would suggest the fourth quarter would be slightly down. So to be up I think, is a testament to some of the backlog that Gerben had mentioned that we had built during the year, as well as some sequential price that came in. And I'll talk a little bit more about how our price has progressed and really good news, as Gerben described as turning the corner.

The operating profit, also impressive growth at 15% to $153 million. The margin side, however, you see was about 60 basis points lower than previous year. I think the good news to point out about that is as our quarters progressed, this is showing a tighter to prior year level than we've seen year-to-date, and I think setting us up to show you margin expansion next year. And it's really been driven by the price-cost dynamic.

On the cost side, we always look at each quarter compared to the prior -- the quarter of the prior year. And in that viewpoint, the material inflation really accelerated and continued to increase throughout the year, which caused us to have to be quite aggressive and responsive with our pricing. And so, to end this quarter with 11 points of price, just to contrast that, in the first quarter, we had pulled one point of price, you can see how diligence and effective a process that's been during the year and Hubbell working very closely with its customers and thoughtfully on how to do that. I think, in particular, very encouraging to us to have gotten the fourth quarter to a point that we're neutral on dollars between price and costs.

I think it's really interesting to note the math on margin, to just have comparable OP with higher cost and higher sales. We actually had a couple of points of margin headwind, even though we were dollar neutral. And so, that kind of speaks to the fact that we've still got, we believe, work to do, and we're looking forward to getting those margins expanded in '22. Earnings per share up 20% in line with sales, a larger increase in operating profit as we had tailwinds in non-op areas, including better than prior year on the effective tax rate, as well as lower interest expense.

The free cash flow, you see 70% growth to over $200 million of cash, but I think I'm going to save my cash flow comments until we get to the full year, I think cash flow is better talked about not just the quarterly dynamics, but across really the entire year. So turning to page seven. We'll start with the electrical segment results, and this is really where the continuing operations affects -- you see 22% sales growth to $489 million. We had 1% of that was acquired, 14 points of price pulled in the segment and 8% unit growth.

So very impressive sales growth, impressive pricing performance, impressive unit expansion. Of note, that 13 points of price is ahead of the company at 11, which is indicating that our electrical segment is ahead of our utility segment by about a quarter in terms of getting that price pulled in concert with our distributor customers. I think to comment on the 8% unit growth, we had impressive growth in the light industrial product area, some verticals that are really providing attractive dynamics in renewables. Data centers are quite attractive, 5G rollout area, which I had mentioned before.

Heavy industrial, we saw double-digit growth, quite strong recovery there. Non-res, on a continued ops basis, our exposure is cut in about half to non-res. But we saw some growth there, expecting that to continue. The one area of softness was in residential and that was really not a demand comment.

But on the supply side, a lot of constraints there that prevented our resi business from growing. On the operating profit side, you see 48% growth to $67 million of operating profit, margin expansion of 250 basis points. And you really got a lot of levers working for us here. One is the incremental drop-through on the unit growth.

And second is this segment had gotten themselves to a positive tailwind position on price above material costs. So impressive financial performance. I think not coincidental to the financial success is the success of us creating really a new electrical segment. You recall a year and a half or so ago, we had been reporting this really as three different businesses, bringing it together under one segment has really allowed us to compete collectively.

And I think we've got some good traction on that front. I think we've seen both effectiveness benefits, as well as efficiency. I think we're more focused on our customer. This pricing performance, I think, is driven in large part, to be able to do that across an entire segment rather than battle it individually and certainly efficiencies in marketing and product development and operations as we utilize factory and distribution center network space.

So a very successful implementation of really that one segment, which is quite similar to what we had achieved on the power side many years ago. Worth mentioning the full year for electrical because this certainly was a quarter of some relatively easier comps. But for the full year, for the electrical segment on a continuing ops basis, we did see 30% growth in operating profit and 150 basis points of operating margin. So really successful year as well for the segment.

Page eight, flipping to utility solutions. Same story for utilities that we've had over the past few quarters, impressive growth of 19% to over -- to $612 million. We acquired, through the two companies I mentioned, six points of that growth. Price accounted for 9% and the unit growth was about 4%.

So that 9%, as you see, is a little bit behind where our electrical segment is, but you see the trajectory. The first half was about two points for utility. Third quarter was about six points, fourth quarter nine points. So you can see how we're trending and setting up well for '22, and we'll talk about our outlook in just a minute.

The 4% unit growth really is being driven by demand in our power systems area, where upgrades, system hardening and modernization continues to be important needs on the part of our customers. We -- as Gerben was describing, the demand that we saw far exceeded our units shipped. And so, we have some decent visibility into power systems. On the Aclara side, the chip shortages did impact our meter business there.

Our results were down a little bit in the fourth quarter. And we're anticipating that showing improvement next year as well. On the operating profit side, you see roughly comparable at $86 million of operating profit but down about three points. So again, a slightly similar story to what we talked about in the third quarter, where the price material headwind, though we've gotten price up to nine points, we're still haven't fully caught up on a dollar basis yet.

We see that catching up in the first quarter and ultimately, in the second half, beyond catching up on dollars, we think we can start to get margins to expand in the second half here. So I think the franchise is extremely solid. And as price-cost kicks in, you're going to see a solid year, we think, in '22. Pull the lens back to see the full year for our continuing operations, sales up 14%.

The acquisitions were about four, price was six, and units were  four. I'll ask you to just remember that six points of price for the whole year, when we talk about next year, that number is important because we ended the fourth quarter with 11, and that leaves us with five points of wraparound price, which we'll talk about in our outlook coming up. Our operating profit, you see up 8% to $610 million. You see a 14.5% achievement for the year.

Just to remind everybody, we burden our operating profit with our restructuring expense as we consider those part of running the business. We don't have a corporate segment, so that's fully loaded also for any corporate overhead. And so, I like to think of that 14.5% as kind of a trough number with a year with a dramatic price-cost dynamic and that will be onward and upward from here with both our new electrical portfolio, as well as price-cost turning the corner for us. Earnings per share, you see up 13% at $8.05.

So this again on the continuing operations basis. If you looked at us on the format that we launched 2021 on and you included the adjusted results from C&I, we would have been around the middle of our guidance range in the full year performance. And really since October, when we were talking about guidance last, our C&I, the discontinued ops, have underperformed and our continuing ops have done better. So we got to that relative mid part of the range, kind of with the strength of our continuing ops.

On a free cash flow basis, you see a difference between '20 and '21, '20 being a year where we had our sales down 9% in a year like that. You're essentially liquidating working capital, making working capital source. Here, you see 14% sales increase that required an increase in investment in working capital, notably in receivables and inventory. The supply chain, unreliability, I think caused us to be quite conscious about investing even more in inventory in the fourth quarter.

And so, you see that $424 million achievement was about at 96% of adjusted net income. So a little short of our target of 100%, driven by that working capital need. And I think that will inform us as we talk about our '22 guidance. So on page 10, I'd like to start looking forward here and show you how we think 2022 is going to play out.

And it really starts with the unit volume on the sales side, which we're thinking in the mid-single-digit range. We continue to think non-res can grow. Light industrial can grow. We think our T&D electrical utility components can grow at the stronger end.

And so, the combination of backlog and growth is good there. If you think about how our order book looks in January, you continue to see quite strong demand into the new year. That's supportive of that volume of outlook. I mentioned the price, we achieved 11 by the fourth quarter and six for the year.

So that's five points of wraparound. And so, as we build our waterfall from our 8.05 starting point, you see two really good contributors, the incrementals dropping through on the volume and then the price-cost productivity bucket being nice and tall and green. We don't think it's going to be the full effect of the five points of price because inflation -- the second pair besides price and in addition to price material cost is nonmaterial inflation against productivity. And we are anticipating continued inflation from areas like salary and wages and transportation, and we expect headwinds in those areas.

Our productivity is going to be hampered a little bit by returning costs in areas like T&E, we think our salespeople are going to have much more time on the road being able to be with our customers, things like medical and other items we think are returning costs that will prevent productivity from fully offsetting inflation, but still a very healthy contribution from that second green bucket. We've got EPS centered at $9, nice double-digit growth to that. Not all of that volume and price is going to drop through. We are anticipating making some specific investments.

On the innovation side, we've got some new product development efforts underway in attractive high-growth areas like renewables, utility automation and comms. We think there are some areas there that we're really well positioned to invest some of this goodness and come out in '23 beyond, much stronger. There's also some capacity expansions in the power area, which has really continued to grow and so we'll be adding some capacity there. In the nonoperating, you see essentially a breakeven.

We're anticipating initiating some share repurchases with the proceeds from the sale of C&I lighting. We're thinking that could be in the neighborhood of $125 million or so. We've got plenty of authorization from our board to execute on those levels. There's also some positive contribution from other income relating to some credits we anticipate, getting for supporting transition services around our divestiture and that on nets against anticipated of a normal tax rate, which would reverse some of the tailwind we had this year.

So net of that, double-digit growth to $9. On the free cash flow side, we're anticipating similar range to this year. We finished at 96% this year. And as we grow, we think that the investment in working capital is going to be continued to be required.

And we also believe that we will be investing on the capital expense side and growing that in double digits way to support the power expansions. And on the electrical side, a big aggressive plan around automation and driving efficiencies there. I think of note, you see that organic investment, but you don't see the benefit from inorganic investment. And the same way we had that $235 million of investment in three deals last year, we would hope to be able to deploy some capital on the acquisition side, and we have quite an active pipeline and finding higher growth, higher-margin acquisitions, we hope will enhance this outlook.

So with that, I turn it back to Gerben for comments on the new year.

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Great. Thanks, Bill. And before we begin Q&A, I'd just like to underscore a couple of key points on this morning's presentation. Hubbell is well positioned for the near term and long term.

We entered 2022 with a high-quality portfolio of complementary businesses, which are strategically aligned around electrification and grid modernization and with visible strength in demand. While the operating environment remains uncertain, we are turning the corner on price-cost and continue to navigate a dynamic supply chain environment to effectively serve our customers. The outlook we have provided to you this morning reflects strong fundamental operating performance, and we are confident in our ability to deliver. And finally, I want to highlight that we are planning to hold an investor day in New York on June 7 of this year, where we look forward to giving you further insight into our long-term strategy.

And with that, let's turn it over to Q&A.

Questions & Answers:

Operator

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

Jeff Sprague -- Vertical Research -- Analyst

Thank you. Good morning, everyone.

Dan Innamorato -- Senior Director, Investor Relations

Good morning, Jeff.

Jeff Sprague -- Vertical Research -- Analyst

Hey, good morning. Hey, I apologize, I missed a little bit at the beginning of the call here. But can you just elaborate a little bit more on the price realization in electrical, is it broad-based across the entire segment? And whether or not you have kind of additional price coming into the market to begin the year here?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah, Jeff, it is quite broad-based in electrical. Close cooperation with our customers. It wasn't easy, certainly. And there was many price pulls, but that's been a good success story for the electrical team.

And I think right now, we're planning it that the wraparound, so how we exited the year, is going to be the wraparound as there is continued inflation, wages and other areas, there may be a need to pull price. And as I'm saying, the kind of mass of dollar neutrality leaves you margin short, and that's another reason that we might need to still not be done on the price point. So I think there's -- we're planning it as a wraparound and kind of see how it develops.

Jeff Sprague -- Vertical Research -- Analyst

And the price material positive for electrical, that's a dollar number or a margin rate number?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah, it's a dollar number. Yeah.

Jeff Sprague -- Vertical Research -- Analyst

And on Aclara, I get it, the semi shortages and the like. Do you have any visibility on just kind of improving supply there? I would imagine you've been working on supply for the better part of the year here. Just wonder if there's any kind of light at the end of the tunnel or anything else going on with site access or anything that might still be holding that business back?

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Yeah. So specifically, to Aclara, Jeff, the chip shortages are continuing. We expect those to continue well into 2022. There's obviously a lot of work going on to build chip capacity.

But as you know, that's multiyear timing to get those up and running. So, certainly, our plans and projections continue to project that we're going to be dealing with these challenges throughout 2022. So I think access has gotten better. Certainly, we've been here, and their help back with Omicron coming up.

We are about to wrap up a big project in a big utility this quarter. So we'll put that behind us and have continued to be able to do that. So I'd say it's probably less access and more material shortages that are holding that business back. And that's more broadly on our entire business is the case.

And we've done a lot of work. I think as Bill explained, sequentially, we've continued to increase our production, and that's function of solving some of these things, not only in our own plants, but supply chain. So we do see it getting better, but it's slow coming, I'd say.

Jeff Sprague -- Vertical Research -- Analyst

OK. Thank you.

Operator

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

Tommy Moll -- Stephens, Inc.

Good morning and thanks for taking my questions.

Dan Innamorato -- Senior Director, Investor Relations

Good morning, Tommy.

Tommy Moll -- Stephens, Inc.

I wanted to start off on the investments you have budgeted for some of the innovations. What additional can you add, if anything, on some of the specific product development initiatives you have underway? And then, as we think about the dollars budgeted here, is there any way you can frame it, just total size of that budget, maybe '22 versus '21? And when you do allocate those dollars, what's the rough payback period or cycle time until you see first revenue? Thank you.

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Yeah. Great, Tommy. Let me -- I'll start with that and I'm going to kick it to Bill to kind of provide some color on the numbers around it. But it is, first of all, geared toward these higher-margin, higher-growth opportunities.

So think solar, think data centers, think utility products. We have a portfolio of products that are adjacent to those. So it's, in a lot of cases, modifying products that we make for those specific applications. I'd also say it's not just about product, but it's about production.

And when we talk about the capacity that we're adding to service the utility men, and one example of that is actually a little bit of restructuring and investment, we're taking three sites, and we're consolidating those into one. And on top of that, adding additional capacity to one of our business -- our enclosures business, add needed capacity to serve this increased demand, not only from utility, but from the communications market that really has been growing, and we continue to see them grow as GDP plus. So it's not one area, I would say, but it's definitely more focused for us to do this in areas that matter for us, higher-growth, higher-margin areas. And that takes investment.

Maybe Bill, you can give a couple of comments of kind of magnitude?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah, the magnitude, Tommy -- good morning -- we've got about $0.20 in that waterfall dedicated to investments. And on the payback cycle, that does not pay back this year. We'll start to see good traction next year, and the way our plans have in year three, you really start to get your payback there. So I think we'll have lots of intermediate signpost that tell us that the investment's going to have a big, nice payoff.

And we think we've picked some really kind of nice return, lower-risk places that Gerben was highlighting.

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Yeah. Maybe I'll close. One of the things I mentioned in my comments, investor day coming up in June and I really encourage you to join us for that. That will be an opportunity where we look to be more specific on some of the investments that we are making and the innovation.

So I think we'll provide some more color there as well.

Tommy Moll -- Stephens, Inc.

We'll be there. Just a quick follow-up on the EPS outlook you've provided for the full year. So double digits on full year '22 versus '21. Anything you would offer to help us frame the seasonality in terms of the contribution across the quarters, maybe just comparing it to a typical cadence?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah. Yeah, it's interesting, Tommy. We think it's returning to look a lot more normal seasonally on the top line. And what I'd say on the earnings front, that's a little bit challenging is -- per Jeff's question, we have really, really nice insight on price.

We know what's in the market. We know what our products are selling for. As a LIFO company, there's just a little bit of uncertainty on the material cost, and we're starting to see steel costs potentially come down. And so, we -- I'm not sure we've got that pegged perfectly to know that at the earnings level, it will behave seasonally.

But because the top line is we've got it planned out in a much more seasonal way. I would say the way we're looking at price-cost, it's slightly back half-weighted benefit. But I'm not sure that our -- we're using jump-off points, right, rather than have perfect knowledge of where the costs are going to be.

Tommy Moll -- Stephens, Inc.

Yeah. Fair enough. I appreciate the insight, and I'll turn it back.

Operator

Your next question comes from the line of Steve Tusa from J.P. Morgan. Your line is now open.

Steve Tusa -- J.P. Morgan -- Analyst

Hey, guys. Good morning. 

Dan Innamorato -- Senior Director, Investor Relations

Good morning, Steve.

Steve Tusa -- J.P. Morgan -- Analyst

Can you just give some color on the segment margins and any drivers there, maybe just like price-cost spread between -- for both of them for '22??

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah. So on the electrical side, Steve, by the end of the year, they had gotten ahead. But for the year, they still had headwind on the price-cost side. And so, I think that they're really benefiting from -- for the year anyway, really having that volume kind of drop through in an attractive way.

And so, I think the utility guys in contrast are about a quarter behind that, Steve. And the utilities themselves have just been -- it takes a little more time to get those price pulls through versus our distributor partners. I think we're quite nimble as the year progressed and this became the order of the day. And so, the utility folks had, had more than those three points of price, where -- or three points of margin negative compare or more than that was coming from the price-cost.

So I think the key to us getting utility margins up in the second half of next year is getting that price to catch up and crossing over. So it's going to be quite important to that -- for us to achieve that.

Steve Tusa -- J.P. Morgan -- Analyst

Great. Thanks. 

Operator

Your next question comes from the line of Brett Linzey from Mizuho. Your line is now open.

Brett Linzey -- Mizuho Securities -- Analyst

Thanks, and good morning. 

Dan Innamorato -- Senior Director, Investor Relations

Good morning, Brett.

Brett Linzey -- Mizuho Securities -- Analyst

Yeah. I wanted to come back to the order growth, 20%. How does that split between the segments? And I'm curious, are you seeing any more advanced ordering as customers look to secure a spot or double ordering? Or is it really just commensurate with the underlying demand you're seeing in your core markets?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah. I would say that the order pattern has been skewed toward the utility. And our units shipped was a little lower in utility, so a lot of the backlog has been built on that side. And I think you're right to point out that the order pattern is above what our expectation for sustained annual growth rates will be.

And so, I think utilities are doing a lot of things. They see the promise to deliver dates gap out, and so they're getting in line. They're seeing some of the materials be available erratically and so they're making sure they're in the queue, and they see price increases, so they want to be ahead of that. And so, for all those reasons, I think that demand -- and yet they really have the need to put that product into the utility infrastructure.

And so, that's been pretty skewed toward the utility side. Electrical, on their side, has had -- they have built backlog and they built a decent amount of backlog, but not nearly as much as the utility. And I think we're seeing distributors order and they can basically sell it when they order it on the electrical product side.

Brett Linzey -- Mizuho Securities -- Analyst

Got it. Makes sense. And then, on that point with the order backlog, is some of that were subject to repricing or the escalator clauses within that? You talked about some of the inflationary pressures you're seeing sort of outside roles. Just thinking about how that might be able to move up over the course of the year on a repricing basis.

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Yeah. I would say there is very little. We probably have pockets here and there where we see this. But for the most part, we don't.

And that's one of the reasons when Bill talked about that lag between when we see commodities come up, when we go at price and when we actually start to realize that being a little longer in utilities, is exactly for that reason, right? There's more demand out there, more orders that have been placed with future dates. So it takes us a little longer to recover it, but clear. And we've showed this chart in the past, where we kind of show price and cost over longer cycles. And you can see that over the cycles, we show being equal or even net ahead.

But it can take some time. And that's really the view we take with our customer. It's a longer-term view of having to recover cost increases with price. That's one of the reasons we are able to effectively do this.

We do a good job communicating this. We're fairly consistent in our approach of doing it. But yeah, it takes a little time to recapture it. But then we hold on to it on the other side as well when we see commodities coming down.

That's the dynamic that we've shown over time being net positive for our story.

Brett Linzey -- Mizuho Securities -- Analyst

Yeah. Makes sense. Thanks a lot. I'll pass it along.

Operator

[Operator instructions] 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, guys.

Dan Innamorato -- Senior Director, Investor Relations

Hi, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

So I want to continue the discussion here on price-cost and maybe some specific inputs and sensitivity. So I don't buy a lot of boot lace barrel connectors, whatever those are. But just looking over at the catalog, there's an awful lot of steel or stuff that looks like it's made out of it. And with LIFO, maybe deflation a little bit more imminent.

But could you just sort of help us with the sensitivity to steel in particular, since that's kind of rolling over here? I mean just kind of doing some back of the envelope, like you start to come up with numbers in like the dollars of EPS tailwind. And since we're heading into that in the next couple of quarters, how do you think about kind of snapping the line on some of the futures rates out there on steel if you were to hold the price? Like is it that big? Or is there something on either price leak or some other inflationary item that we should just keep an eye on so we don't run away with individual points?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah. I think the math problem that you're solving, you're coming at it an interesting way, the same way that I look at it, right, where you have gross margins in this 30% range. So you got your COGS up there in the 70 kind of point land and sort of half of those costs is labor and overhead and burden. So the balance of half of those COGS is a combination of component costs, subassemblies, purchase for resale amounts, as well as some raw materials.

And when you look at the raw materials, you're right to look at a catalog and you -- there's aluminum and copper, for sure, but steel is -- would be our largest exposure. And so, as we've been looking at the forward numbers and watching the market, you kind of have seen copper in the relatively flattish area. You've seen aluminum in the favorable area and certainly, steel you may be seeing in the favorable area. So as that unfolds to the extent there is some sustained movement down from here, that would be upside to how we see the plan.

And in order to accomplish that, you got to basically hold on to the price, which is why what Gerben was talking about, the conversation with the customer, right? We very specifically, Josh, do not have those conversations as a steel surcharge, right? We have it as a set of broader inflationary pressures so that when -- if a customer were able to see steel going down, that they don't just ask for the price cut then. So it's hard for us to say the sensitivity because if it goes down a lot, you'd give up some price. So it's not just the subtraction of that. But you're right to point out that steel is the biggest, and you're right to point out that it can be sensitive.

So you're right to point that out.

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Yeah. Yeah. Maybe to add a couple of comments. As we think about '22 more generally, I would say there is, among the many things, that we look at and track, two, I would say, come out of this.

One is commodities and inflation and what's going to happen with that inflation, particularly those related to supply chain, things like freight and labor and what's the impact of those on our results. And the second one, really, the ongoing supply chain challenges and what's the impact on volume. So commodities and inflation and volume are really two big leverage. You're right to point out at this point, and we're tracking this closely.

Steel is showing some retention. But I'd also say still plenty of challenges. Steel is the biggest. Copper and aluminum are also pretty significant for us.

One that we're actually looking at, right now it's aluminum. What a lot of that is coming out of Russia, and that needs to play out still here. So I said early in the year, I'd say while we do see some upside on steel, particularly right now, there's still a lot of uncertainties this early in the year. So our approach is to monitor these closely.

And as the quarters go, we'll certainly update you. And if that requires updates to our guidance, we'll do so. So...

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Great. That's super helpful detail. And I'll squeeze in a shorter extra one just because of that. In the T&D components section, is there kind of a pareto of growth in there as it pertains to some of these megatrends like grid hardening? Or is it kind of evenly spread across that segment? Different way of saying, do you sort of own what you need to own to capture the upside? Or are there areas where you'd like to double down?

Bill Sperry -- Executive Vice President and Chief Financial Officer

Yeah. I would say just on the infrastructure hardware side, I think we feel really great about our position and feel like we have a leading position. As you get to the edge and meters, we feel like we're a very important leading player there. So one of the places that's exciting to us is that space in between the meter and the components and areas of automation and control and protection.

So that's kind of a place where you'll see us -- some of the questions came up about new product development will be there, as well as, frankly, acquisition potentials as well. But if you're talking just T&D components, we feel incredibly well positioned with our breadth of product, our relationship with the customer. And I would say, Gerben, during '21, given all the ups and downs for the utilities and dealing with their suppliers, it feels to me like our relationship has probably improved in our ability to kind of work well with them during a volatile year.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Perfect. Appreciate it.

Operator

There are no further questions at this time. Presenters, you may continue.

Dan Innamorato -- Senior Director, Investor Relations

All right. Great. Thanks, everyone, for joining us. And I'll be around all day for calls.

Bill Sperry -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Dan Innamorato -- Senior Director, Investor Relations

Gerben Bakker -- Chairman, President, and Chief Executive Officer

Bill Sperry -- Executive Vice President and Chief Financial Officer

Jeff Sprague -- Vertical Research -- Analyst

Tommy Moll -- Stephens, Inc.

Steve Tusa -- J.P. Morgan -- Analyst

Brett Linzey -- Mizuho Securities -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

More HUBB analysis

All earnings call transcripts