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DATE
Tuesday, July 29, 2025 at 2:00 p.m. ET
CALL PARTICIPANTS
Chairman, president, and chief executive officer — Gerben Bakker
Executive vice president and chief financial officer — William R. Sperry
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TAKEAWAYS
Adjusted EPS— Adjusted earnings per share increased 11% to $4.93, outpacing operating profit growth due to non-operating tailwinds.
Sales— Sales rose 2% to just under $1.5 billion, with growth led by the electrical segment and grid infrastructure.
Adjusted operating margin— Adjusted operating margin expanded by 120 basis points to 24.4%, driven by favorable mix, price-cost management, and the FIFO transition.
Adjusted operating profit— Adjusted operating profit grew 8% to $362 million, supported by high-margin T&D components and price realization.
Free cash flow— The company is on track to achieve a 90% free cash flow conversion target for the full year.
Utility solutions segment sales— Sales increased 1% to $936 million, entirely organic, with grid infrastructure up 7% and distribution products returning to mid-single-digit organic growth.
Grid automation— Grid automation contracted 13%, reflecting the roll-off of large projects and normalization of backlog after prior chip shortages.
Utility segment operating profit— Operating profit rose 7% to $239 million, with margin expansion of 140 basis points from price realization and favorable segment mix.
Electrical solutions segment sales— Sales grew 4% to $545 million, predominantly organic, with notable data center and light industrial demand and some contribution from the Ventev acquisition.
Electrical solutions operating profit— Operating profit increased 9% to $124 million, with margin improvement to 22.5%.
Data center revenue— Data center sales are expected to grow 30% for the year, sustaining strong performance within electrical solutions.
Inventory accounting change— Adoption of unified FIFO accounting led to a $29 million decrease in COGS in the quarter, contributing approximately $0.30 per share to 2025 results and accelerating select tax payments, offset by future legislation benefits.
Share repurchases— $225 million in buybacks were completed in the first half, providing non-operating EPS lift and supporting balanced capital allocation.
Full-year guidance— The company raised its full-year adjusted EPS outlook to $17.65–$18.15, a $0.30 increase at both ends, and expects 4%-6% organic growth and margin expansion, including about three points of price contribution for the year.
Order trends— Grid infrastructure orders increased by high teens year-over-year in the first half, supporting strong expectations for organic growth in the second half.
M&A activity— A small utility-focused acquisition in water utility enclosures was closed in the quarter, and a non-core business was divested; the M&A pipeline remains active with a focus on higher-growth portfolio areas.
SUMMARY
Hubbell(HUBB 0.54%) reported that segment performance was marked by significant data center and light industrial activity in electrical solutions, while utility solutions benefited from renewed distribution demand and continued strength in transmission and substation projects. Management stated that grid automation demand has stabilized at a lower base after prior project roll-offs, with a return to growth forecast for the fourth quarter, supported by a steadier backlog mix. The company cited approximately two percentage points of price realization in the first half, with incremental pricing expected in the second half as tariff impacts are addressed. Order books in grid infrastructure segments support expectations for mid- to high-teen percentage growth from transmission and substation projects in the second half. Management also highlighted a steady pipeline of bolt-on and larger acquisition opportunities targeting high-growth segments such as transmission, data centers, and light industrial markets.
Executive management indicated that the channel destocking cycle in distribution products has concluded, enabling sales growth to recouple with end-market demand.
Management explained that the adoption of FIFO accounting provides more accurate margin recognition and aligns reporting with industry peers.
Leadership noted that the company is proactively managing cost structure and pricing actions to offset inflationary pressures and tariffs.
Management described ongoing investments in restructuring, new product development, and AI initiatives to support long-term efficiency and growth.
Executives reported that the M&A pipeline is active, with recent activity focused on utility enclosures and divestiture of non-core assets.
INDUSTRY GLOSSARY
FIFO: "First-In, First-Out" inventory accounting method, now adopted across all company businesses, impacting the timing of cost of goods sold recognition.
MRO: Maintenance, repair, and operations, a core driver for steady demand in the grid automation segment.
Aclara: The company's smart meter and advanced metering infrastructure solutions provider, comprising part of the grid automation business.
T&D: Transmission and distribution, high-margin areas within utility solutions driving favorable mix and margin benefits.
Bolt-on acquisition: Acquisition of a smaller company that adds to or complements a business unit, referenced regarding recent M&A in utility enclosures.
Full Conference Call Transcript
Gerben Bakker: Thanks, Daniel. Good morning, and thank you for joining us to discuss Hubbell Incorporated's second quarter 2025 results. Hubbell delivered double-digit adjusted earnings per share growth in the second quarter, driven by strong organic growth in Grid Infrastructure and Electrical Solutions as well as year-over-year adjusted operating margin expansion of 120 basis points. We are raising our full-year outlook today, and we remain confident in our ability to deliver attractive financial performance for our shareholders over the near and long term. As detailed in this morning's press release, our results and outlook this morning are presented on a FIFO basis.
William will provide you with some additional details in a few minutes, but this transition enables a greater consistency of cost accounting method across our businesses and better matching of expense and revenue recognition, particularly during inflationary periods. While raw material inflation and tariffs are driving incremental cost inflation relative to our initial outlook, you will see throughout today's presentation that we have been proactive in driving price and productivity across our portfolio. We are well-positioned to achieve positive price-cost productivity in 2025. In Utility Solutions, performance in the quarter was highlighted by 7% organic growth in Grid Infrastructure.
Transmission and substation markets remain strong as our utility customers invest to interconnect new sources of load and generation on the grid. Distribution markets returned to growth as the recent customer inventory normalization cycle has run its course, and our sales growth in the quarter recoupled to reflect solid end-market demand driven by grid hardening. Grid infrastructure orders remain strong, up high teens year-over-year in the first half, supporting our expectation for strong organic growth in the second half. While grid automation performance was weaker than anticipated, strong growth in our higher-margin T&D components product categories drove favorable mix dynamics in the quarter.
In Electrical Solutions, we delivered mid-single-digit organic growth with continued adjusted operating margin expansion and 9% adjusted operating profit growth. Our segment unification efforts and our strategy to compete collectively are driving outgrowth in key vertical markets, most notably evidenced by strong data center growth in the second quarter. From an operational standpoint, we continue to simplify our business to drive productivity and operating efficiencies, which we are confident will drive long-term margin expansion. While the macroeconomic and inflationary environments remain dynamic, Hubbell Incorporated is well-positioned in attractive markets with a leading portfolio of brands, and we are proactively managing our cost structure and pricing actions to drive continued profitable growth.
Now let me turn the call over to William to provide some more details on our financial results.
William Sperry: Thanks, Gerben. And welcome, everyone. Thank you for joining us. And maybe before my comments, if I may just offer a personal note of support to any of you who were in Midtown yesterday, with the rifle being discharged at Park and 52nd Street. It was a pretty disturbing day, and I just hope you and your people are all okay. So I am going to start my comments on page four of the slides that you hopefully have found. I will start with our adoption of a unified FIFO-based inventory accounting standard. Our previous state had been roughly, in very rough terms, half LIFO, half FIFO.
That was really just an outcome of companies we had bought or companies we had sold. We just brought them on in their prior standards, and we thought this was a good time to make the effort to harmonize that with maybe three specific benefits. The first being running the company under a single methodology, which I think allows us to simplify our business reviews and have everybody running the same way. Secondly, in an inflationary environment, pricing typically takes about a quarter to get into the revenue stream when those new prices are recognized.
So previously, we created a distorting lag and asked you to be patient, and I think now we can offer you a more accurate recognition of our margin in the quarter that it is happening. Third, I am hoping it puts us, from your perspective, on the same footing as our reporting peers, hopefully making comparisons and contrasts and better judgments. So obviously, none of this destroys or creates profits during the cycle. It is just the timing of when the expenses are recognized. The implications you can see on the right-hand side of the page was a $29 million decrease in COGS in the second quarter and a $20 million decrease in COGS for the first half.
So you see the impact on 2025 was about 30¢. That is equivalent to the range in guidance that we have made, and Gerben is going to talk about more at the end of the conversation. The other implication is it accelerates some tax payments to be made over the next several years. Interestingly, those payments will be more than offset by what we are expecting to be cash benefits from the new big beautiful bill tax legislation recently passed in early July. So all of this, we just wanted to remind you on the bottom of the page, we feel the obligation to continue to put out a high-quality reporting framework.
We think a more harmonized standard continues to contribute to that. We are just calling out here reminding everybody that we do things like fully burden our segments with corporate costs. We include restructuring costs in our results because we feel they are an important part of our ongoing performance, and we as well recognize the benefits. So enough, hopefully, on accounting. Turning to the performance, I am on page five. Our sales were up in the quarter 2% to just under $1.5 billion. There was general strength in our electrical segment. On the utility side, the strength was in the grid infrastructure area. In the grid automation, we had a weak quarter of double-digit contraction.
If you put the electrical segment and the infrastructure side together, you would have a mid-single-digit growth rate providing a couple of point drag to the overall sales results. Second column, you see adjusted operating profit. The dollars up 8% in the quarter to $362 million. The margins widened by 120 basis points to 24.4%. If we talked about the drivers there, interestingly, we tend not to talk about mix very frequently with you all.
But it so happens that the area of contraction in grid automation and Aclara's towards the lower end of the spectrum of our margin of our portfolio versus with areas of growth, namely burning and grounding and connectors, and the T&D area of utility happened to be quite high-margin areas. So there is just the market growth, just a natural mix benefit. As well, we continue to manage price cost very well and as well the FIFO impact as we discussed on the previous page. The third column there is adjusted earnings per share. You see grew on a dollar basis 11% to $4.93, outgrowing the operating profit growth with some non-op tailwinds.
Last year's tax rate was a little bit higher, and I think as we have been talking about with you all during the first half of the year, we bought some shares, about $225 million of share repurchases. So that creates a little bit of non-op lift as well. On the fourth column, you have the free cash flow. Good growth in the quarter. Importantly, we feel continuing to track to the 90% conversion that we are targeting to achieve through the operating year of 2025. So let's disaggregate the enterprise results into the two segments. On page six, we will start with utility. You see 1% growth there to $936 million. All of that growth being organic.
That unpacks into the two pieces. One is the grid infrastructure, the more hardware side of the business. That is about three-quarters of the segment. You see 7% growth there. That disaggregates into double-digit growth in transmission and substation. Continued very healthy demand there. The distribution side, that last mile, connecting to the house or the building, growing at a mid-single-digit rate of sales. Important to note that year-to-date, our orders are up high teens in this area. I mentioned that importantly when Gerben gets to our guidance and our outlook for the balance of the year, certainly, the order book is influencing very heavily how we think about providing you guys guidance here at the halfway point.
So I think we continue to see the trends of grid modernization alive and well. Very good news. I think additional good news and quite noteworthy to see that as the distribution products grew, we can say that the channel destock has concluded. I am sure you are as happy as I am to not have us discuss that any longer with you all. So that feels good to emerge from that. Grid automation, at a 13% contraction, about a quarter of the total segment, we have had some roll-off of large projects that were not backfilled. We really have the situation where we have been coming out of a heavy backlog year to that.
That was created when the chips were not available the year prior. So we have had some erratic comparisons to be made. I think when we get to the outlook, we will talk a little bit more about how in a stable and growing environment finally, grid automation feels to be in a better position. On the operating profit side on the right-hand side of the page, you see the dollars grow by 7% to $239 million in the quarter. Margins up 140 basis points, driven by continued price realization managing price cost quite effectively. Again, good mix there between the infrastructure growth and the grid automation contraction. So solid bottom-line performance for that segment.
Good growth trends inside the core piece of grid infrastructure. We will talk about the electrical segment on page seven. See a solid quarter turned in by this segment. 4% sales growth to $545 million, largely organic, but there was a small contribution from the Ventev acquisition, which you will remember, which is a wireless infrastructure products. As we think about driving that mid-single-digit growth, data centers continue to be a very significant contributor to our balance of systems product portfolio that is exposed there. The light industrial markets were very strong for us. For our connectors and grounding products. Heavy industrial, certainly more mixed than non-residential. A little bit soft.
As you look to the right side of the page, on the operating profit, 9% growth in dollars to $124 million. Margins up a point to 22.5%. They are dropping through incrementals on their volume. Managing price cost. They continue to push productivity. I think you all remember Mark Mike's leading this segment doing a good job on competing collectively on the top side, working around some Salesforce realignments that we think have been successful in vertical market selling and cross-selling and continuing to work some channel conversions. On the cost side, continuing to become more and more efficient as we create a real segment rather than a series of vertical businesses.
So what I think Mark is pulling off here and his team is consistent multi-year momentum in the segment, and we see it continuing to grind upwards and improve. We are very pleased with his results and think he has got still years to go on that improvement side. On page eight, I am going to talk about the markets as a setup, and Gerben is going to come back and talk about our outlook and guidance and kind of have these market perspectives maybe as input into the top line of his guidance comments that he will share. So what you see in the inside of both of the circles is roughly 4% to 6% organic sales growth.
It is roughly equal between the segments. It is roughly equal contributions from price and volume, though a little bit price skewed versus volume skewed there. If we start with electrical on the right, we think the second half will be quite similar to the first half. You will see from around 10:00 to around 3:00 there in the circle, a little more cautious around heavy industrial and non-residential. Contemplating flat contributions for the year. But as you work down, you start to see light industrial renewables. You are seeing low and mid-single-digit contributions. Clearly, the star of the show continues to be data centers. We are anticipating 30% growth there. On the left side, you have our utility markets.
What you see from about 10:00 to 4:00, you see the grid protection and the electrical distribution, high singles and mid-singles. Again, I will just note that electrical distribution of mid-singles maybe looks modest next to the transmission and substation, but that is an inflection just to remind us, coming off of its destocking. So that is quite positive. We just see continued strength there. Our positioning is very good. I think our sales growth is going to continue to be strong. You all recall us going through last year with some significant contractions there in the enclosures business driven by telecoms.
Again, quite encouraging to see them finish out any of the overstocking situation plus potentially any market weakness that was combining with that. To return to growth. So that is quite good. You see the Aclara piece of meters and AMI down 20, and I think that is worth maybe some comments. Clearly, the large projects and a lot of the backlog that we were fulfilling from that point in time when in the previous year, the chips had become unavailable. It was difficult for us to ship. Those got fulfilled and created quite a difficult compare for last year. We have in response managed costs really working to moderate the decrementals there.
I think if I were to describe the position that Aclara is in, I would say the last three quarters have been quite flat sequentially. We think that is a we are kind of down to that stable base of smaller projects, MRO, good business with meeting coops, and the more public utilities. We think we are expecting that in the fourth quarter Aclara will return to growth and be able to have a steadier operation moving forward as we sort of absorbed this reaction to that heavy backlog here in the prior year. So with those pieces, I am going to turn it to Gerben and have him synthesize that into our outlook for you.
Gerben Bakker: Great. Thanks, William. We are raising our full-year adjusted earnings per share outlook to a range of $17.65 to $18.15. This represents a raise of 30¢ at both the low and high end of our prior outlook range. We anticipate 4% to 6% organic growth and full-year adjusted operating margin expansion. This outlook is consistent with our long-term financial framework, which we believe will deliver differentiated returns for our shareholders over time. We are confident in our ability to navigate through near-term macroeconomic and inflationary uncertainties to deliver on these increased financial commitments in 2025.
We are seeing strong evidence of secular growth megatrends in the largest, highest-margin areas of our portfolio, which we believe will underpin strong performance in 2025 and over the next several years. We are confident that Hubbell Incorporated's unique leading positions at the intersection of grid modernization and electrification, combined with structural opportunities in our operating model and capital deployment potential, will continue to drive long-term shareholder value creation.
William Sperry: With that, let me turn the call over to Q&A.
Operator: Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is open.
Jeffrey Sprague: Thank you. Good morning, everyone.
Gerben Bakker: Good morning.
Jeffrey Sprague: Just on electrical distribution, the return to mid-single-digit growth. I am just wondering if that is your view of what the underlying market is growing. And we should view that as sort of a steady-state growth rate from here. Or do you, in fact, think even though you are not talking about inventory in the channel, it still might be an issue and it is perhaps muting the growth rate. So you grew through it this quarter. Right? But the question is, is mid-single-digit growth really kind of the sustainable growth rate from here?
William Sperry: Jeff. Maybe I will start with it. I think the short answer is yes. Mid-single-digit is the underlying growth rate. What we see reflected of end-user demand is what they are actually hanging on the infrastructure. It does improve in the second half, though, based on just easier comps, right, compared to last year. But, yes, we believe fundamentally, longer term, this is a mid-single-digit growth area with a combination of MRO replacement and grid hardening.
Jeffrey Sprague: And then on the return of growth in Aclara in the fourth quarter, I guess that would also mostly just be a comp issue. You know, putting aside comps, do you actually see a pickup in activity there, project or otherwise, that would create a situation where we could expect some growth out of that business in 2026?
William Sperry: Yeah, Jeff. The trajectory, the last few quarters, has been quite flat sequentially, so that is the start, you know, to get flat. As you look out and see the pipeline, I think it is not at all unreasonable to think of it as a low single to mid-single-digit growth from this kind of new lower base.
Jeffrey Sprague: And just on tariffs, I am sorry if I missed it, but can you share with us what the tariff impact embedded in your results is? How much pricing you are getting against that and maybe just a little bit more color on pricing in the two segments.
William Sperry: Yeah. So we got a couple of points of price, Jeff, in the first half. We are, in the second quarter, slightly ahead of tariffs on a price-cost basis. We are expecting more tariffs to hit in the third quarter, and more price to hit. So we feel that we acted pretty early and we feel that the market kind of accepted those increases based on the tariff logic and that those prices have stuck reasonably well. So we are feeling good about our ability. There is no question it is a challenging environment, and having the regime change quickly and with quite little notice, maybe something being put on and being delayed.
But nonetheless, I think we are managing that quite well using price, and we feel we are ahead at this split second.
Jeffrey Sprague: Yep. Okay. Thanks. I will leave it there.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Tommy Moll with Stephens. Your line is open.
Gerben Bakker: Hi, Tommy. Good morning, Tommy.
Tommy Moll: Wanted to start with a conversation on copper specifically and commodities more broadly, but copper has obviously had a big move here, and the question arises what, if any, impact do you contemplate for this year's earnings? If I can just make it a two-parter, maybe more broadly, where are you exposed versus well-covered just in terms of the hedge strategy across all the commodities that would be meaningful here? Thank you.
William Sperry: Yeah, Tommy. So I would say if I answered it backwards, you know, we use the price lever as the way to hedge against commodities and metals. So we feel not exposed. We actually feel well-covered. When we introduced this framework last quarter, we were taking your question about the commodities. Even though we may not be paying tariffs, we were considering that metal inflation to be tariff-related because a lot of it was cost, you know, by producers being able to take advantage of a price umbrella. So there have been movements. Our exposure is copper, steel, aluminum, all of those. I hear you on copper.
There is maybe some uncertainty going forward, and yet we continue to be confident that we can use price there, Tommy, and we have got very active ongoing dialogue with all of our customers and distributors talking about that. I think that dialogue is being well-informed by analytics and price charts and all of that. So I think it is going to the raise to guidance you should assume from us to mean we feel confident that we can cover that kind of inflation with price.
Gerben Bakker: Yeah. Maybe more specifically say, right, if copper is up more recently, if that relates to fact, it will require additional price. But under the new construct, of FIFO, we got the time. Right? You will see a delayed impact of that copper cost coming through, and it gives us the time to price for it. I say, you know, copper is one example, but we continue to see, right, whether it is reciprocal tariffs or whether it is steel and aluminum here recently that went up, just a very dynamic environment. It starts for us on the cost side and what we can do to mitigate.
This is supplier negotiation, both of sharing some of this cost or delaying the impact. The supplier moves or reshoring. It is trade organizations that we use to help with exemptions. It is just, you know, all-out effort and it is truthfully a responsibility that we have for our to offset some of these costs with cost actions and productivity. Then, of course, as well, you know, using prices where needed to beat price-cost neutral. So I would say very dynamic, your copper example is just one of, I would say, various areas that we are looking at and proactively managing to.
Tommy Moll: Thank you both. And then for my follow-up question, wanted to ask on the EPS guidance you provided. There are some moving pieces this quarter. The LIFO FIFO discussion has gotten sufficient airtime, but also there was the 50¢ contingency or sensitivity from last quarter that is no longer part of the conversation today. So my question is if you think purely from an operational perspective, would you say things have gotten better, worse, same in terms of the earnings expectations for this year? Thank you.
William Sperry: Yeah. I think I would say that we continue to be on track to deliver the operational performance that we had promised at the beginning of the year. You know, Tommy. I would say that implies overcoming some new costs from tariffs and it involves overcoming some slightly more challenging first-half volume, you know, would be. So we view that as a bit of an accomplishment, you know, operationally to be able to do that. To your point of moving that contingency, we also feel is good in removing that uncertainty from our investors' expectations.
Tommy Moll: Thank you. I will turn it back.
Operator: Please stand by for our next question. Our next question comes from the line of Chris Snyder with Morgan Stanley.
Toby Okora: Hi. Thank you for the question. This is Toby Okora on for Chris. I wanted to ask for a little bit more color around the end markets. I know that data center seems like it is remaining strong. We have not really seen anything negative there. But any other areas of green shoots that have shown up particularly on the electrical side? Thank you.
William Sperry: Yeah. Certainly, I think for us green shoots wise, you know, this we have been talking, I think, for the better part of this year, and probably extending into last how we thought demand was always in reasonably good shape. Yet we were seeing some channel overstocking that was creating us making kind of fewer shipments than was being ultimately installed. That started for us in wiring device. We worked our way through that. Now fully a year plus ago, it felt like distribution, that last mile of utility product kind of was still working against us. We feel really happy to say we think we are through that.
So it is not a green shoot in that demand has changed and it is just a green shoot in the amount of shipments we will be able to make to replenish the fact that the channel has kind of rightsized itself. By channel, I am extending through a distribution customer to the end. I also would point out the enclosures area where telecom had been creating some static and we have seen that area revert to growth and year over year was flat in the second quarter. But sequentially up from the first quarter. We are quite confident that bottomed in Q1.
So there are some nice green shoot improvements in our where we will be able to ship, which are not the exact same as that there has been market inflection. Right? It is just the demand needed by the end customer. We do think things have changed meaningfully here at the midway point of 2025.
Gerben Bakker: The only thing I would add to that is on the light industrial side of electrical that is continued to be very resilient with some of the projects, some of the reshoring there with the or in the specific product, the grounding connectors. It is holding up really nicely.
Chris Snyder: Thank you. This is Chris. I wanted to follow-up on price. So I am I last quarter, you guys kind of planned for two price increases. I believe the first was in April, and there was a second one that was expected later in the quarter. I am assuming that second one maybe did not go through or got pushed out. So can you just kind of remind us on that price increase? When is it coming? And I guess, how material could it be when we think about the organic guidance in the back half?
William Sperry: Yes. So Chris, you broke up a little, but what we heard was a question about the price that was pulled in the second quarter. Was there price pulled maybe towards the middle or end that has not yet been seen in shipments? That is true. I think I might have heard you say was that price increase delayed? I would say it was not delayed. It was implemented, but it has not yet shown up. So the two points of price that we are seeing in the second quarter should actually grow incrementally in the second half due to the phenomenon that you are describing.
Chris Snyder: And just any could you kind of tell us, like, where that price ultimately will go to in four as we look at about a fully realized basis? Thank you.
William Sperry: Yeah. I mean, I think so we are describing 4% to 6% of sales in the full year. We are anticipating maybe three points of price in the full year with two in the first half. That is kind of a construct, Chris, that we have got.
Chris Snyder: Thank you.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Julian Mitchell with Barclays. Your line is open.
Julian Mitchell: I think my first question, I just wanted to understand better perhaps the moving parts around operating margin expansion in the second half. It looks like there is not much of an expansion, I think, on year dialed in, and that is presumably that sort of FIFO-related tariff hit coming through. But just wondered if you could confirm that. Is the sort of when thinking about Q3 versus Q4 dynamics, anything to call out there? I noticed R&D spend a bit higher in Q3. Should we expect a sort of better year-on-year margin performance in the fourth quarter because of price and less R&D spend?
William Sperry: Yeah, Julian. You made a number of good points. First of all, we are expecting our mix to continue to be favorable in the second half. We are anticipating, as you mentioned, several things you mentioned. One is some of those tariff costs coming through being offset by price dollar for dollar. Unfortunately, that is not always margin friendly, but it is OP neutral, but not margin friendly. Thirdly, we are anticipating some extra investing in the third quarter both in restructuring and other investment areas. So you actually have the drivers there, and I agree with your analysis is exactly how I see it.
Gerben Bakker: Maybe the only point I would make a comment on is on the investment because clearly, we are very, very focused on our cost to manage through this dynamic environment. But I would also say we are not losing focus on our long-term needs and ambitions and the investments that we are making. So, you know, whether it is in restructuring, whether it is in new product development, whether it is in some of the areas of AI where we are looking at how can we gain efficiencies in our business longer term. We are really balancing, you know, here is where we are taking cost out of this system both structurally and shorter-term actions.
Against where we need to continue to make investments. So you will see some of those in the second half.
Julian Mitchell: That is helpful. Thank you. And then just maybe looking out a little bit further, I think you mentioned just now the full-year organic sales guide embeds low single-digit volume increase and a sort of faster pace of volume growth in the second half of the year. As we sort of look out beyond this year, is that low single-digit volume increase the right sort of placeholder? Or do you think doing it. Sort of sustain that second-half exit rate for some time into 2026.
Gerben Bakker: Yeah. I would say it is consistent with what we provided in the investor day framework, which is kind of mid-single-digit for our portfolio longer term.
Julian Mitchell: Great. Thank you.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Joe O'Dea with Wells Fargo. Your line is open.
Joe O'Dea: Hi. Good morning.
Gerben Bakker: Good morning.
Joe O'Dea: Could you just talk about the trajectory of growth within grid infrastructure as we move from first half to second half and coming off of first-half orders up high teens? So as we look at, you know, what, guess, easier comps and distribution and the order strength, just how you are thinking about the back half growth rates and things like transmission, substation, distribution, to get to something that seems like it would be a low double-digit organic growth rate in the back half of the year for utility?
William Sperry: Yeah, Joe. You know, I think it starts with continued strength. We showed you those pie slices on page eight. But transmission and substation have been growing, and we just see that just continuing through the balance of the year. So you have got a really nice contribution in the mid and high teens there. From a very substantial base. I think secondly, as you noted, for distribution to now have started growing and because of the destock dynamic, they are starting to face some easier comps. So that distribution, you know, if it gets to mid-single digits for the year, it is going to have above that in the second half of the year.
I think the more wild card is Aclara, and the third quarter will be, say this not to confuse, the third quarter will be the fourth quarter of its contraction. So as it hits the '25, it is the point in time, and that was what Jeffrey Sprague was asking about. Right? But that now allows it to return to growth even on sequentially kind of flat? So all of those things are coming together where you see, you know, you see the order book, and you start to see easier compares for Aclara. It starts to create, you know, Joe, that kind of second-half trajectory that you cited.
Joe O'Dea: Got it. That is helpful. Then just wanted to shift to capital deployment. We see continued activity on the repo front. But just in terms of the M&A pipeline side of things, characterization of how that looks, so you think about the likelihood of any activity there? Into the back half of this year?
William Sperry: Yeah. Your question is timed to the hour or so. We just closed this morning on a small bolt-on acquisition. It is in the utility space. It makes enclosures for water utilities and helps them collect and sense data and communicate that data. Small, but a good sign to your question. We also, in the quarter, we sold a small business. That was not really contributing to the growth and margin profile that we aspire to. So I use those as two small examples of us continuing to tend to the portfolio. Weed out and add. Even if it is small, we think those are good moves to make.
They end up not creating a huge financial contribution to this year, but we think are good for us in the long run. I think maybe more generally, the pipeline continues to be quite active. There are a number of private equity firms who have invested in our space, and, you know, one thing we probably can all count on is, you know, as soon as they buy something, you know, in that whether it is three, four-year time frame, they will be looking to sell. So that creates some opportunity for us, and I would say our business development teams are quite busy looking at things. Obviously, to the extent we have something to talk about, we would.
But it certainly is our intention to continue to invest in acquisitions. The pipeline has businesses and assets that we find attractive. At the same time, I think, you know, our cash flow continues to grow. So you did see us, I think, to prevent the balance sheet from getting a little lazy. You did see us buy $225 million of shares in the first half of the year. So you probably would have seen that average more in the 40-ish, 50-ish dollars a year range. So it is a slightly maybe more balanced capital allocation than in the past, but we continue to be quite interested in acquisitions, Joe.
Gerben Bakker: Yeah. Maybe the only thing I would add, our focus for these deals is in higher growth areas of our portfolio that we aligned on. So, you know, think T&D, think data centers, think, you know, light and all those markets that are growing higher. There is a good pipeline of the other. I think there is, you know, reasonably good availability of deals. They are both on the bolt-on as well as, you know, some larger ones in there. So, you know, I feel good that we have availability of these deals and that it continues to be focused on, you know, becoming more important, increasing our portfolio to the customers. We serve in these attractive markets.
Joe O'Dea: Appreciate the details. Thanks.
Operator: Please stand by for our next question. Our next question comes from the line of Brett Linzey with Mizuho. Your line is open.
Brett Linzey: Hey, good morning. Yeah, just wanted to follow-up on the grid automation and specifically the meter side. So encouraging to see that sequential improvement, but I guess as you think about that stability you are pointing to, is it most just the MRO side or are you beginning to see some RFPs start to ramp back up on new projects that be slated for next year.
Gerben Bakker: Yeah. I would say the bit where the business is now, it is mostly on the MRO and smaller projects, I would say. This business is very highly focused and has always been on the more public power market, the coops, and the munis. So I would say both in MRO as well as the more traditional projects. We are seeing some larger projects in the pipeline right now. We are quoting those. So, you know, that remains to be seen if whether we win these or, you know, when they will hit.
But I think as we provide certainly the guidance here for the balance of the year, and our comments into next year, it is a much more stable business. It is more of the ongoing MRO and projects that we are seeing.
Brett Linzey: Great. Then just shifting back over to the electric transmission and the substation piece. Very strong growth. You talked about the good run rate into the back half. But thinking about the bouncing off point, as you assess some of the project queues and then your win rate separately, on these projects, can you sustain that double-digit growth range into next year based on your current visibility in those businesses?
Gerben Bakker: Yeah. Maybe I will start with just our position in these markets. Right? If you think about our portfolio in transmission and substation, I mean, this is where some of our core strength comes from, both the offering that we have, the portfolio that we have, the relationship and the specifications that we have. So we see this project. I mean, we have won some of the largest transmission projects that are being built in the US. We are Hubbell Incorporated as a supplier. So the visibility, I would say, is good, and it is out there. It is multiyear that we are seeing there.
So this concept of high single-digit growth that we said in investor day, we see visibility to that, certainly in the next few years.
Brett Linzey: Okay. Great. Thanks for the color.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Chad Dillard with Bernstein. Your line is open.
Chad Dillard: Hi. Good morning, guys. So I was hoping you could bridge the old versus new earnings guidance. I think you had $0.50 of tariffs before. Where does that go? How much is a FIFO versus LIFO transition? Anything you can call out on the core business or anything else? Thanks.
William Sperry: Yeah. So let's use page nine as the way to bridge. So at the very beginning of the year in January, we had a 4% to 5% growth rate with a point of price. So there was three to four of volume. Now we are four to 6% of growth with kind of three points of price. So kind of two points of volume. So we are getting to our goal with a little bit less volume, Chad. Right? So that is really the first point of notes. Secondly, all that contingency from tariff risk has been removed. I think that is important to know.
Thirdly, there has been 30¢ in the first half of the year of benefit to switch to FIFO. That has been added to the guidance. So I think the way I would bridge it is saying, we are operationally getting to the same point in January as we said. We have overcome the tariffs in doing that through getting a little more price. It has come at the expense perhaps of a little bit of volume, but the margin and price cost management is allowing us to get there. So I think that is how I would bridge the pieces.
Chad Dillard: Great. That is really helpful. Then, yeah, with the change in tax laws, I think, like, one of the is that there is going to be a lot more manufacturing construction. So I think you have talked about your content, you know, as a share of the project. I think, somewhere around, like, mid-single digits. So how does that change you are going to be moving into more manufacturing versus the, I guess, like, the baseline?
Gerben Bakker: Not sure we understand the question there, Chad. You are talking about, like, systems control type applications?
Chad Dillard: Yeah. Systems control.
Gerben Bakker: Yeah. I mean, traditionally, we said it is a low single-digit percentage of cost. In terms of components and what we traditionally make. A systems control type business would be higher than that, obviously. Not sure it changes the overall blended rate for the segment, but certain businesses, yeah, will be at the higher end of that. So if you are looking at the substation space, for instance, we would make up more than that low single-digit if you include systems control.
Chad Dillard: Thank you.
Operator: Please stand by for our next question. Next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.
Christopher Glynn: Curious about an HES question. You talked about continued progress with the Salesforce alignments and some channel conversions with years to go. Just looking to elaborate on that a little bit and specifically, are you suggesting that channel share and distribution pickup runway has, you know, several years of progression there.
William Sperry: Yeah. Just think starting with sort of the journey that we are on, Chris, and good morning. So Mark, as you will recall, helped us really take the utility segment and take a number of acquisitions and really create a business out of it rather than a series of verticals. He has now had a couple of years in the electrical segment leadership role, and he is really doing the same thing. One of the first initiatives that was pretty important was realigning the Salesforce. So rather than have Salesforce dedicated by product, it is now dedicated by geography.
So there is more cross-selling, and we think that is leading to a really good customer response, and they find it easier to do business with us. It is better for us because we get more selling time in front of the customer that is kind of cross-selling. Part of that also included creating some vertical teams around specialty verticals, data centers being the most obvious, and we found those to have been successful rather than us selling a product through distribution to data centers. We are now more aware and can sell a broader basket of products.
So to us, that initiative on the commercial end has been successful to date, and I am saying it is still in its implementation and will get better and will improve, I think. That is why I said I do think there are years ahead, and my years ahead also implied some of the efficiency things that Mark is doing, taking out redundancies and staffing and the like. So there is both a commercial front-facing element to what he is doing as well as a back-end infrastructure overhead kind of element to what he is doing. It is just not a silver bullet boom. It is kind of a we grind it upward. You know?
I think you have seen examples. You have seen it in evidence already over the last year or two.
Christopher Glynn: Agreed. Great description. Thanks, William.
Operator: Please send it. Can we take one more question and then close it out?
Gerben Bakker: Sorry. I have got some technical difficulties on my end. I am seeing the chat. So take one more and then close it out.
Operator: Alright. Our final question comes from the line of Patrick Baumann with JPMorgan. Your line is open.
Patrick Baumann: Hi. Good morning. Thanks for taking my questions. On the second half of the year, I was wondering if you could help me think through how to envision organic volumes ramping at the utility segment. Does it go from, like, I do not know, low single-digit organic volume growth in the third quarter to something in the double digits in the fourth quarter year over year?
Gerben Bakker: Certainly not on a volume basis, Pat. If you are talking organically again, you can kind of do the math on first half, second half. But volumes will ramp through the year. Particularly get in the fourth quarter on some easier compares, and then price will be a steady incremental contributor as the year progresses.
Patrick Baumann: Okay. So volumes in the fourth quarter do not get up to double digit?
Gerben Bakker: Yes. That would not be reflected in guidance, no.
Patrick Baumann: Okay. Maybe I am just doing the math wrong on the price and organic growth stuff. Sorry if I missed this. This is a cleanup. Just backing into a margin guide for the year, expansion of 50 basis points, that in the ballpark? Then on the segment, should we think about electrical being above that rate and utility below that?
Gerben Bakker: Yeah. You are in the ballpark for the full year. Again, the segment drivers are going to be both impacted by the FIFO and LIFO transition. But yes, probably a little bit more in electrical and utility.
Patrick Baumann: Then maybe just last one. Sorry. Another cleanup. So I think the EPS is a little bit shifted last year. With the accounting changes this year. Any way to think about the EPS growth in the back half of the year split between third quarter, fourth quarter? Any color you want to give on that?
Gerben Bakker: Not really. Again, it is going to be based on the volume discussion we just had. It will probably be the biggest driver.
Patrick Baumann: Great. Thanks, Lawanda. I will be around all day for follow-up calls. Thanks, everybody, for joining us.
Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.