Hubbell Inc. (HUBB) Q4 2020 Earnings Call Transcript

Hubbell Inc. (NYSE:HUBB)
Q4 2020 Earnings Call
Feb 2, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Hubbell Incorporated Fourth Quarter 2020 Results Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session to ask a question during the session. [Operator Instructions]. Please be advised that today’s conference is being recorded.

[Operator Instructions].

I would now 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 and full-year 2020.The press release and slides are posted to the Investors section of our website at www.hubbell.com.

I’m joined today by our President and CEO, Gerben Bakker, and our Executive Vice President and CFO; Bill Sperry.

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

Now, let me turn the call over to Gerben.

Gerben W. Bakker — President and Chief Executive Officer

Good. Thanks, Dan. And good morning, everyone. And thank you for joining us to discuss Hubbell’s fourth quarter results on this snowy Tuesday morning. And I suppose, if there is such a thing as a positive from COVID, it’s that most of us are still at home and don’t have to brave snow and difficult commutes at this time.

But before we get to the results for the quarter, I want to take a few minutes to reflect on our strong performance for the year and recognize all our employees who made that possible through their tireless efforts and dedication.

The COVID-19 pandemic presented us with considerable end market, operational as well as personal challenges, but our employees consistently rose to the occasion, delivering exceptional performance for our customers and shareholders.

Our first priority through this pandemic has always been the health and safety of our employees and we implemented a series of safety protocols to protect employees in our plants, warehouses and in the field.

We also recognized our frontline workers with bonus appreciation pay for their efforts and provided generous paid leave policies for all employees.

Our next priority was to continue serving our customers, with the essential products necessary for the safety and reliability of critical infrastructure. Our employees again proved to be flexible and adaptable in maintaining high levels of productivity, while continuing to deliver best-in-class quality and service that the Hubbell brands are known for.

Our next priority was to operate with discipline and maintain strong liquidity for our shareholders. And despite considerable end market and operational headwinds as a result of this pandemic, the company achieved full-year adjusted operating margins which were essentially flat to prior year. As well as free cash flow generation of $560 million, reflecting 12% growth over 2019 levels.

We accomplished this by focusing on what we could control, including a rigorous drive on productivity, along with disciplined operating expense and working capital management. Hubbell’s ongoing operational transformation and footprint optimization investments are producing sustainable savings and we expect to continue providing significant future benefits.

While this pandemic is not yet behind us, I am confident in our organizational ability to continue to deliver on our promises and commitments to our customers and shareholders.

Now, moving on to the results for the quarter and starting on page 3. We see solid performance in our Utility Solutions segment, with continued strength in demand for grid modernization and renewables investments, driving mid-single digit growth in Power Systems business in the quarter.

As expected, our electrical end market volumes remained soft, but we saw a steady pickup in momentum exiting the fourth quarter and continuing into January, which gives us confidence these markets are beginning to improve.

Our operational transformation continues to provide structural savings and drive our margin performance, while also contributing to strong free cash flow. This allows us to invest organically and through acquisition, and we’ll walk you through some of the ways we’re deploying our capital to increase shareholder value later.

And finally, we’re providing guidance for 2021 today. And we’ll take you through that in more detail during this call. But the overall takeaway is that we are anticipating a return to growth while remaining focused on our operating discipline, actively managing our cost structure and investing in future growth.

Turning now to page 4 with financial highlights for the quarter. You can see organic sales declined 7%. Demand for Utility T&D Components in our Power Systems business remained strong as our utility customers continue to invest to upgrade, modernize and harden critical grid infrastructure, while Aclara still experienced COVID-19 related project delays. The electrical markets improved particularly exiting the fourth quarter.

Adjusted operating margins of 13.4% declined 60 basis point year-over-year as a result of lower volumes and the non-repeat of a benefit from tariff mitigation in the fourth quarter of 2019, which we previously disclosed. Excluding the impact of this prior-year benefit, we would have expanded adjusted operating margins once again in the fourth quarter as our restructuring program and cost controls continue to offset lower volumes.

Finally, we achieved another quarter of strong free cash flow generation to cap off a year of double-digit growth through disciplined working capital management.

With this, let me turn it over to Bill to walk you through our financial results in more detail. Bill?

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

Thanks, Gerb. Good morning, everybody. Thanks for joining us. We’re aware there is a number of calls this morning. I’m going to start my comments on page 5 which will underscore a couple of points that Gerben made. But you see the 6% decline in sales where electrical was relatively weaker and tower much more resilient.

And as Gerben noted, it’s very significant to us to see the inflection in orders. So, really starting in December, we started to see orders pick up and turn positive. Allowed us to finish year-end with an increased backlog, and encouraged to see the order strength through the month of January where we had orders up double digits. So, really welcome the growth that that predicts for this coming year and see our sales expand.

Gerben commented on the margins and the impact of the tariff refund from last year. Also, you see earnings per share down at 8%, less than down the operating profit amounts, driven by some favorability on the non-op side, including some favorable tax, interest expense and pension tailwinds that helped us a little bit.

I think on the cash flow side, the story is in the year rather than the quarter and we had a 12% increase in the full year, $560 million. Our typical seasonality over the last five years is to have about 30% of the cash flow collected in the first half and 70% in the second half. This year is much more balanced at 50/50. So, you see a negative compare in the fourth quarter, but very good increase for the year.

So, I’d like to unpa
ck the results and discuss the two segments, and we’ll start with the Electrical Solutions on page 6. You see sales down 10%. Quite broad based across the segment. Some of the harder hit areas of Electrical include the harsh and hazardous area as the oil economy continues to struggle, C&I lighting as well as heavy industrial, whereas we had relative stronger performance out of resi lighting, our wiring device and our connectors business.

The order inflection that I described for the whole company was also experienced within Electrical. So, there, December showing an inflection to the positive and then strength into January. So, good to see a change in the winds for electrical demand.

The margins declined to about 10% there at $55 million of OP. Two-thirds of that decline explained by the tariff refund distortion that Gerben had mentioned. So, about 20% decrementals without this impact.

I do want to draw your attention to the 1% of sales growth that came from acquisitions just because I think it’s illustrative of our capital deployment program. This is a company called Connectors Products Inc., CPI, an area that we like a lot. Strong markets and high margins. We acquired it last year at a trailing EBITDA valuation of 12 times and we own it this year on 2020 numbers at 5 times. So, quite a good illustration of us adding a nice bolt-on business, use our sales force to push the growth and be able to take and make costs much more efficient underneath our ownership. So, just an illustration there of that 1 point of acquisition.

Page 7, we’ll look at the Utility Solutions segment. Then you see a 1% decline in overall sales to $479 million. If you unpack that, our legacy power systems business increased mid-single digits. That was driven largely by transmission projects, which continued to have some support from the renewables area, and the distribution side was strong as well as grid hardening and upgrades to the aging infrastructure continued to be secular trends that are defying the cycle.

Aclara was down double-digits, continued to have installation delays as there are access issues continuing on their projects. The Aclara business, we’re coming up on our three-year point of ownership. They have been a mid-single-digit grower for us during that three-year time and we see it maintaining that mid-single-digit growth through 2021.

Excellent performance on the operating profit line. You see a 12% increase, all driven by margin expansion of about 2 points to the 17.5% level. Very strong price, cost management, and the growth dynamics are margin friendly to us as power systems contribute to high margins. And the parts of Aclara, the installation side are the lower side. So, we’ve got a mix-friendly growth dynamic there. So, again, continue to see really, really strong performance from the utility part of our business and we’ll talk later about how it continues to be an area of focus for our investment dollars.

Also, wanted to share the full year of 2020 for you on page 8. And you can see sales down 9%. Same theme with electrical, softer; utility, more resilient. There has been steady improvement from the quarters, starting with the real shock from the second quarter. Third quarter was better than that. Fourth quarter better than third. And now, as we said, we’re seeing this order inflection that we think turns us to relative growth next year — now this year.

The operating profit margins roughly comparable at 14.5%. We think managing to the 15% decrementals that you see indicated is — shows successful cost management. We also had benefits from our restructuring efforts, which continue to reward us with savings each year. And we also had incrementals from the power systems growth, which helped us achieve that 15% decremental results.

The free cash flow I had mentioned before at 12% increase, on $560 million. Important thing about that, enables us support our capex program. We spent about $88 million on capital this year. Really important to our productivity efforts. And as we’ll talk about in our plan, this cash flow allowing us to increase the amount of capital we invest in the business next year.

Also supports the restructuring program. You’ll notice, we invested about 3 extra cents in the program than we had initially thought. There was some opportunities for us to push and pull some things forward and get ahead and get some cost savings going into next year. So, we bumped up that restructuring effort here in 2020, with, we think, were some very good projects.

Also supported the acquisition program. And in the fourth quarter, we closed on three acquisitions totaling $236 million of investment. On our October call, we had mentioned, the first of those three, which was AccelTex and you’ll recall that was exposed — it’s a company with — that makes enclosures and antenna mounts exposed to the 5G trend and building staying connected. Very happy with that acquisition and how it’s doing.

But I want to turn to page 9 and talk about two additional acquisitions that we closed in the Utility segment. I’ll start on the far right column with Armorcast, an enclosures business that sells into the electric cell com and water utility area. It’s a high growth business, higher than average, and has potential of higher margins. So, an area that we’ve been successful on our platform and we have the opportunity to extend the reach of that platform and enclosed Armorcasts.

I think the second area of note is a vertical area of distribution automation, another area that we think can outgrow the Utility segment in general. It stands in between really the backbone and where our legacy Hubbell Power Systems business sits and the edge where Aclara sits and deals with the grid automation and controls in between those two areas.

We have started a business unit dedicated in this area. We’re investing in new product development and we were very pleased that we had the opportunity to invest inorganically in the acquisition of Beckwith, also done in December. Beckwith had been a previous partner of ours where we had been coordinating between Hubbell hardware, Aclara communications technology and Beckwith with their controls to create new products and we’re really pleased now to have Beckwith in the Hubbell Utility family. And again, we think a high growth, high-margin area.

So, we’re quite pleased that the free cash flow we generated was able to be invested, $236 million in the fourth quarter. And when we get to share our guidance, we’ll show you how that’s creating some important lift to our financials for 2021.

So, I want to turn back to Gerben and to talk about our ESG program.

Gerben W. Bakker — President and Chief Executive Officer

Great. Thanks, Bill. Indeed, a couple of great acquisitions to bolt-on to the utility franchise here in the fourth quarter. Before I take you through our 2021 outlook, I want to take a minute to highlight our ESG strategy at Hubbell and some of the progress that we’ve made recently using page 10.

From a portfolio perspective, our businesses are strategically aligned around the electrification and grid modernization, both of which we view as important, clean energy megatrends where we are well positioned to play a leading role.

As the economy continues its transition away from fossil fuels and more things to plug into the electrical grid, it creates the need for new solutions behind the meter, in front of the meter and at the edge of the grid.

And with our leading position across each of these phases, Hubbell is uniquely positioned to solve these critical infrastructure problems. A good recent example that I want to highlight is the products that we are supplying to construct one of the US’ largest wind farms in Oklahoma, starting construction later this year. Not only are we supplying transmission materials from our Utility segment, but also grounding, connectors and enclosures products across our Electrical segment.

In terms of what we are doing internally to demonstrate our commit
ment to ESG, I would like to highlight a couple of areas today. First, we have established multi-year goals to reduce our water consumption and greenhouse gas emissions by 10%. We also placed a high value on ensuring the safety of our employees and we have been effective in making multi-year improvements, including a reduction of about 40% in both the number and severity of safety incidents in the past five years, with further improvements to come.

We’ve also recently launched a new sustainability website, with details on the initiatives we are undertaking and expanded disclosures around our operations. We encourage you to visit this website and I look forward to continue to update you on our ESG turns going forward.

Now to our 2021 outlook on page 11, and starting with our end market pie chart on the left. We expect continued growth in our utility markets. We see our T&D components market providing solid 2% to 4% growth. And note this growth is coming on top of a relatively difficult comparison as these markets grew consistently throughout the pandemic in 2020, evidence that the drivers here are more secular in nature with the grid modernization, renewable energy integration.

You will also note from our press release this morning that beginning in the first quarter of 2021, we will be reporting results of our gas distribution business within the Utility Solutions segment. This is reflected within our T&D component markets on this page. This realigned operating structure reflects our comprehensive offerings of utility components and communication solutions across common electric, water and gas utility customers.

We expect utility communications and control markets to rebound in 2021 and strengthen as the year progresses and regional economies open up more fully, with existing projects restarting and new ones launching.

We note that even with the declines experienced in 2020, our Aclara business has grown revenues at mid-single-digits since we acquired it. And we expect to maintain that trajectory at 4% to 6%.

On the electrical side of the pie, starting at 6 o’clock, we expect industrial markets to return to growth [Indecipherable] 3% to 5%. As Bill noted, we are already see evidence of this in light industrial, which is shorter cycle and typically the first vertical to pick up. And then, we expect heavy to improve as ’21 progresses.

We expect residential markets to remain strong and contribute 3% to 5% as housing markets, retail and e-commerce trends remain supportive of continued growth. On the non-residential markets, they tend to be later cycle and we anticipate continued softness into 2021 as new construction spending faces further decline, while renovation and retrofit activity to provide some support to offset. Remember that our non-residential exposures balance about 50/50 between new construction and renovation.

Overall, with the new segment reporting structure that we announced earlier last year, we see a nice 50/50 balance of electrical, the utility markets representing our strong positions across the energy infrastructure, both behind and in front of the meter.

In terms of financials, on the right hand side of this page, we expect total sales growth of 6% to 8%, with acquisitions contributing 3% and organic growth from volumes and price contributing another 3% to 5%.

We expect adjusted earnings per share of $8.10 to $8.50 and we’ll walk you through the drivers of that on the next page. And then, importantly, we are driving the free cash flow conversion at a 110% of adjusted net income, which at the midpoint of our earnings per share guidance gets us back to about $500 million for the full year. This, while we invest in working capital to meet improved demand and continue our journey of improving working capital efficiency.

So, let me now turn it back to Bill to give you some more context on the moving parts that make up this guidance.

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

Yes. I just wanted to walk everybody through two bridges. On page 12 is a bridge that shows the guidance that Gerben just gave and disaggregate some of the pieces. And then, I wanted to show you a two-year walk on the next page.

So, for here, you see us starting at $7.58, growing roughly 10% to get to that range of $8.10 to $8.50. The first driver is the very welcome return of volume, and so we’ve got, as Gerben was highlighting, a 6% to 8% sales growth where acquisitions are providing about 3% of that. So, 3% to 5% organic, but with 1% of price, which is over to the right. So, this is that balance of 2% to 4% of volume, dropping through at 30% to 40%. And again, very welcome to see that. Very happy to see the order book supporting that growth as we start the year.

The acquisitions, we’ve got about $0.25 here in the acquisition bucket. You all had $0.05 already, as we had talked about AccelTex back in October. The two new deals that we closed in December providing an additional incremental $0.20.

And then, on restructuring, we’re anticipating lower investments by about $10 million and incremental savings from what we invested last year, create a really important lift to our earnings profile.

And we get to price cost productivity, we’re anticipating a year of strong price realization. We’ve already been to the market. There’s not obviously one simple unilateral lever on price. It’s brand by brand, business by business. We’ve started already pulling those levers in January and throughout the first quarter.

Inflation had continued to persist, and so it’s a very organic process, but we’ll need to keep revisiting and make sure we pull price to the extent that we need to as we realize the commodity inflation that you see listed next.

Also, in this productivity area and cost area is the return of the temporary benefits that we enjoyed in 2020, namely items like furlough savings, T&E and medical savings and some of the tariff refunds and exclusions that roll off, as well as other investments that we want to make in the business.

And on the non-operating side, we see the tailwind of pension and interest expense partially being offset by a small increase in taxes to get to a range of $8.10 to $8.50 for the year.

I also wanted to flip to 13 and show you how 2019 walks to 2021. For us, it was interesting to note that our volumes in ’21 will still be lagging the levels they were at in 2019. And so, you see the income lost with that volume in that first bar. But what was really important to us in how we manage the financial performance of the company as we see the incremental acquisitions continuing to be an adder, we see the restructuring program, taking out fixed costs, simplifying our footprint being in our control and something that’s really providing a positive lift to the story, very careful management of price cost productivity. So, certainly, there are times when the inflation can be persistently steep where we can get behind by three months and six months, but through a two-year cycle, we’ll certainly catch up and be ahead. And so, we thought this picture was helpful to show how, even with less volume, we think we’ve got both the investing capability and the execution capability to drive earnings above the 2019 level.

So, that concludes our prepared remarks. And we’re happy to take questions, operator.

Questions and Answers:

Operator

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

Jeffrey Sprague — Vertical Research Partners — Analyst

Thank you. Good morning, everyone. Hey, just wanted to understand a little bit in the bridge, I think, Bill, you said the underlying incrementals you’re expecting as part of the bridge is 30% to 40%. It looks like that would be exclusive of the restructuring and other benefits, but wanted to confirm that. That’s a very strong number, particularly relative to kind o
f the decrementals we experienced in 2020.

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

Yeah. I think what we’re talking about is the strict drop-through on the volume will be in that range. The decrementals were driven by offsets from things like the restructuring savings as well as the fact that Power Systems was actually growing and providing incrementals. But that drop through, we think, just purely on the volume, can be in that 30% range plus.

Jeffrey Sprague — Vertical Research Partners — Analyst

And on price cost, just isolating on that, I think you said price up 1%. Does that fully cover the commodity inflation that you anticipate or are you a little bit upside down on price cost?

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

Yeah, we’re going to have to see ultimately what happens in commodities. So, it’s a little hard to see how persistent they will be. For example, I think there is one view that says that steel capacity can come back online in the second half, which would moderate some of the increases, but it’s possible copper keeps going, just to pick two big ones for us, Jeff. So, I think we’re going to have to be very nimble and continue to revisit price with our customers continually and watch that cost — those commodity costs really carefully.

Gerben W. Bakker — President and Chief Executive Officer

And, Jeff, maybe just to add a comment to that, I think the timing of the commodities going up late last year was actually good for us because that’s the time at which we’re naturally going out with price increases. So, we did that. Unfortunately, commodities have continued to spike throughout December, into January. And as Bill stated, we absolutely need to be nimble. We’re already going out with more price increases here in the first quarter. I think the positive is that the price increases that we enacted last year, starting in January 1, that had generally stuck well. So, that gives us confidence that these next tranches of price increases should do OK as well. But, definitely, an area of focus for us this year.

Jeffrey Sprague — Vertical Research Partners — Analyst

And I’m sorry, just one other one for me. I’m surprised the Aclara guide is not a little stronger. But, I guess, you’re basically assuming the business stays negative, even probably certainly in the first quarter and maybe even lagging into the second quarter, is that correct?

Gerben W. Bakker — President and Chief Executive Officer

Well, I’d say, for the first quarter, yes, Jeff. But I think we could see it rebounding by Q2.

Jeffrey Sprague — Vertical Research Partners — Analyst

Okay, great. Thank you, guys.

Operator

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

Stephen Tusa — J.P. Morgan — Analyst

Hey, guys. Good morning.

Gerben W. Bakker — President and Chief Executive Officer

Morning, Steve.

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

Morning, Steve.

Stephen Tusa — J.P. Morgan — Analyst

Good execution on the margin front. I agree with Jeff on the incrementals. These deals that you’re doing, I don’t know, it looks to me like they’re around, like, 10 times EBITDA. What are some of the multiples you’re seeing here for the 230 million bucks you spent in the fourth quarter.

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

Yeah. We spent 10.5 times trailing, Steve. So, that’s in a pandemic year. So, I’m hoping by the time we own them for a year and operate them, we’ll own them at south of that for our first year of ownership. But on a trailing basis, it’s 10.5 times.

Stephen Tusa — J.P. Morgan — Analyst

Right. So I guess, when you look at the pro forma a couple of years down the road, are these things growing like mid to high-single digits? Or what kind of growth do you expect a couple of years out?

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

Yes, mid to highs for the areas that we’ve been investing in.

Stephen Tusa — J.P. Morgan — Analyst

Right. So, that’s a double-digit return that you’re getting on that capital that you’re deploying.

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

Exactly.

Gerben W. Bakker — President and Chief Executive Officer

This, Steve, is a difficult utility business tuck-in, where in the other nice thing from it, as we get those synergies pretty quickly within the first couple of years, we’ll see those, so margins kind of within the first few years in line with the rest of the utility business. So, really, right down the center for us.

Stephen Tusa — J.P. Morgan — Analyst

Yeah. That’s quite a differentiated versus these guys that are chasing the dragon a bit with the 20 times plus multiples. Hopefully, you guys don’t have plans to try and pivot that way.

And then, on kind of a little more color on the first quarter, anything unusual to kind of call out there. I know you have a tough — it’s obviously the toughest comp, but anything that we kind of have to be aware of when you look at consensus?

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

I think the most important thing is, as you point out, it’s the last tough compare of the year and Q2 becomes the easiest. I think that as we look at historically, Steve, if all we did is kind of seasonally behave normally based on where we exited Q4, there would be about 3 points of growth embedded just in things playing out. So, that’s not even with much recovery.

And I think the other guide I’d point out is, if you sort of look at our first quarter, we tend to get about a 20% contribution to the year, something like that. So, if you expect the year to improve a little bit, maybe it will be even a little less than that this year, but those are just the considerations I think for Q1.

Stephen Tusa — J.P. Morgan — Analyst

Okay, great. Thanks for the color.

Operator

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

Tommy Moll — Stephens Inc. — Analyst

Good morning and thanks for taking my questions.

Gerben W. Bakker — President and Chief Executive Officer

Good morning, Tommy.

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

Hi, Tommy.

Tommy Moll — Stephens Inc. — Analyst

I wanted to double back to the bridge you gave us there on slides 12 and 13, specifically on price cost which has generated more than a little attention, I think, in recent weeks and maybe months. Bill, this may be asking too much, but could you frame maybe in pennies or nickels or dimes per share the price and cost impact there, as distinct from the cost benefits that you call out. Or if you can’t give us a number, maybe just orders of magnitude here to help us track that as we go forward.

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

Yeah, I think what we’re trying to pull and the actions that we’ve entertained is to get a point of price as we sit here starting the year. And as Jeff was asking, we’re just going to have to monitor commodities closely to see how adequate tha
t is or isn’t to see, ultimately, if we’re going to need to do more. But there are a lot of pieces that we’re not going to get super granular on in that bucket, Tommy, including some investments that we want to make and including the return of some costs that left last year as a result of working from home and all of that.

Tommy Moll — Stephens Inc. — Analyst

Okay. So, I think the anchor you want us to be aware of then is, embedded in that EPS headwind, it’s a point of price on a full-year basis. That’s the working assumption. Am I hearing that correctly?

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

That’s right, Tommy.

Tommy Moll — Stephens Inc. — Analyst

Okay. And then, moving to non-res — and appreciate the end market outlook you gave us with some specific data points to anchor to. But on the non-res side, so 50/50 new construction versus R&R. What additional anecdotes or insight can you give us on how that market has progressed, maybe on a month-by-month or quarter-by-quarter? It’s something that folks are trying to track in real time. You’ve done a great job giving us an outlook for the year. What does the potential progression look like there?

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

Yeah. I think if you stick with the new construction side, it would be worse than our guide would be our expectation. And yet, we think the MRO piece can be a little bit better. And maybe the only anecdote that I’d add for you, Tommy, is just thinking about — there is a significant amount of national account business that’s in the MRO piece, whether it’s a quick-serve restaurant or convenience stores or others or large box retailers kind of manage their own real estate and upgraded. And those projects are frankly nice to have, not must have. And so, that kind of can contribute and help the MRO. In other words, you don’t need a lot of decision makers to say, hey, let’s get back to making our space look better to get that MRO piece regrowing again. So, maybe that’s an anecdote that I’d add for you.

Gerben W. Bakker — President and Chief Executive Officer

And maybe one comment to add there is, as we think to 2021 and we look at the two piece, the 50% that’s new construction and 50% that’s rental, we’re thinking along the lines that the new construction is down in that high-single digits and we’re correlating that with what others are saying, what we’re seeing in some of the data and then the rental will be up GDP-ish mid-single digits. And that’s kind of how we get to our end market projection.

Tommy Moll — Stephens Inc. — Analyst

Very helpful. Thanks, Gerben. Thanks, Bill. I’ll turn it back.

Operator

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

Nigel Coe — Wolfe Research — Analyst

Thanks. Good morning, everyone.

Gerben W. Bakker — President and Chief Executive Officer

Hi, Nigel.

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

Hi, Nigel.

Nigel Coe — Wolfe Research — Analyst

I just wanted to pick up on our thread of non-res. We saw the [Indecipherable] in 4Q. I’m just wondering if you saw that deterioration as well. I know [Indecipherable] step back in 4Q. So, just curious how non-res tracked relative to that 2% to 4% down in 4Q.

Gerben W. Bakker — President and Chief Executive Officer

Yeah. I think, Nigel, that we did experience that on the new construction side. So, that’s definitely the softer piece of our exposure there for sure.

Nigel Coe — Wolfe Research — Analyst

Okay. And then, the 30% to 40% core volume leverage I think Jeff commented, that’s pretty impressive. Anything to think back from a mix perspective impacting us in 2021? Doesn’t sound like there is, but I’m just wondering how we should think about Aclara mix as that starts to accelerate from 2Q onwards. And maybe some of the lighting mix impact as well through the year.

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

Yeah, I don’t know that there’s anything terribly noteworthy in mix. I do think you’re right that if power outgrows, that’s mix-friendly. And as C&I lighting, which would be in this non-res area that you’re talking about, is a lower margin part of our portfolio. So, that lagging is not the biggest contributor through growth. Those pieces are there, but I’m not sure it’s super notable to how we’re thinking of the year.

Nigel Coe — Wolfe Research — Analyst

Thanks, Bill. A quick clarification. The tariff credit you booked in 4Q of ’19, obviously, created a very tough comp for you in 4Q ’20. Was that a one-timer or were there more receipts in 2020? I was wondering if 2020 is a clean comp as we go into ’21?

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

Yeah. 2020 is not a clean comp. So, there was refund that was chunky in the fourth quarter of ’19. But then, there were also exclusions throughout the year that rolled off. And so, our net tariff rate in ’21 will be higher than ’20. So, that’s just something else that we have to manage with price and productivity as part of the package. But that’s contemplated in that PCP bar that you see in the guidance.

Nigel Coe — Wolfe Research — Analyst

Great. Thanks, Bill.

Operator

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

Christopher Glynn — Oppenheimer & Company — Analyst

Hey, thanks. Good morning, guys.

Gerben W. Bakker — President and Chief Executive Officer

Hi, Chris.

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

Hey, Chris.

Christopher Glynn — Oppenheimer & Company — Analyst

Hey, wanted to talk about Beckwith for a minute. It’s interesting to see the Power Systems controls getting developed there. I’m just wondering where exactly in the grid architecture does that fit and how are you looking at moving more upstream with control systems versus the kind of assembly or sub-assembly level. And do you touch on distributed energy resources at all as those get incorporated into the grid 2.0, so to speak?

Gerben W. Bakker — President and Chief Executive Officer

Yeah. I think you’re right on your assessment of that. This is right down what we call distribution automation, and this is a business that even before we acquired Aclara and when I ran that utility business, we talked about investing in it. We actually broke out a group to focus on that. We developed products, our recloser products, for example, was that. So, we’ve actually been looking at Beckwith for a number of years already. But this is controls for distribution automation.

The nice thing about it is, and on that slide that Bill talked about on the organic development, you see actually a controller there that controls a three-phase recloser which we recently launched with a Beckwith control. So, it’s distribution automation that Beckwith supplies and it fits really well with the components — the other distribution components that we have on the grid.

Christopher Glynn — Oppenheimer & Company — Analyst

Okay. And then wanted to take a longer-term view of lighting a little bit, ongoing challenges with competition and stuff. But are you seeing any prospects for wholesale form facto
r shifts like to slim, for instance, or do you think blocking and tackling will be an effective way to run this business long-term?

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

Yeah. I think that I wouldn’t say that we’ve seen evidence of near-term form factor changes. Like, ultimately, lighting someday may be a piece of film on the ceiling or something and that doesn’t feel to be around the corner per se. And so, our approach is to continue to make sure we invest in our product line and make sure we have the proper breadth of quality product. We keep investing in the front end to make sure we got the right agents helping us get to market and we keep taking cost out of the back end. So, of that restructuring, for example, one of the projects is consolidating a lighting facility into a lower cost facility that we’ve got. So, we think we can keep doing better with what’s there. We were quite encouraged that the lighting industry is asking for price increases in early January. It’s too early, Chris, for me to say how much that sticks. But our major competitors among the conglomerates were all recognizing the need to ask for price, and so that’s kind of a good sign, I think. And so, that’s how we are looking at it.

We’re keen to focus on margin there. We don’t want to chase volumes that might have unattractive margins attached to it. So, we’re not focused per se just on growth for growth sake. And that’s how we’ll keep — that’s how we’ll keep running the business.

Gerben W. Bakker — President and Chief Executive Officer

Yeah. Maybe to add, and very recently, as we engaged with one of our large customers, as a result of the electrical segment consolidation and that coming together, I was part of very robust discussions about how we could increase our lighting exposure with this company. So, I think it’s — we’re seeing some of the benefits of that Electrical segment coming together and I think we’ll see some of the benefits there in lighting. As Bill stated, we want profitable growth in this business for sure.

Christopher Glynn — Oppenheimer & Company — Analyst

Thanks. Appreciate the story. I just had a clarification. Gerben, at the beginning, you said something about double-digit orders. Maybe that was a December comment, but I didn’t quite catch it.

Gerben W. Bakker — President and Chief Executive Officer

Yeah, it was around — we saw the orders inflect, Chris, in December. And as January’s unfolded, we’ve got a month in the books with a double-digit order book. And there is questions as to, is that sustainable for the year. We’re not predicting so. There can be reasons why maybe customers are restocking a little bit and maybe they didn’t chase volume. They might have been managing their inventories in December. So, there can be reason for it to be a little bit above sustainable level, but we’re encouraged to see that after the first 30 calendar days of the year.

Christopher Glynn — Oppenheimer & Company — Analyst

Yeah, for sure. Thanks for the clarification.

Operator

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

Christopher Glynn — Oppenheimer & Company — Analyst

Hey, good morning, guys.

Gerben W. Bakker — President and Chief Executive Officer

Morning, Josh.

Josh Pokrzywinski — Morgan Stanley — Analyst

Hey, Bill. Just to follow up on that last question, maybe ask a bit of a broader one. Thinking about price versus some of the nuance in the environment right now relative to kind of past periods of inflation, you’ve got this kind of secular shift in T&D investment going on. Lighting is certainly kind of a different business profile and has already seen a good amount of compression. So, maybe not as much of a structural headwind as much there. You mentioned that folks want to reload on inventories or restarting to. So, in theory, that should help the discussion. But do you see yourself with kind of a better kind of board in front of you in terms of some of those exogenous factors that may help price yield relative to maybe when we were a few years ago going through this the last time?

Gerben W. Bakker — President and Chief Executive Officer

Yeah, I think the last shock that we really had to manage that created a sharp inflection point was the introduction of tariffs and we felt really good about during the course of a couple of years, how that was managed through price. And so, this is the next one. And would I say that we feel better set up to get price now than we did then? It might be a little more equal footing in the sense that somebody might have had a different supply chain and tariffs could have affected different supply chains differently versus this is really being driven by commodities that we all put into our products. And as a LIFO company, we recognize the higher costs soon. Is there a FIFO company that can delay and that all get squeezed out over the course of an inventory turn right?

So, I think maybe marginally, the fact that we’re all facing the pressures makes — and certainly, the early behavior in January of competitors on price suggests that it’s broader based than just Hubbell trying to force it through. So, I think the set up feels OK. But we’ve got to keep watching where commodities go and you always end up worrying about price elasticity, ultimately, and [Indecipherable] demand by adding small increments to the price. But I think it feels like a decent set up to us. Yeah. Maybe one comment to add to that, particularly on the utility business, and again from experience having run that, generally, we look at a little bit longer cycles in that business, both with getting and giving price, long-term relationships with our customers. So, we just went up in January. We’re not going to be able to wait until the natural renewal of contracts here later this year, but that probably will tend to lag a little bit more than on the Electrical side. But we’re clearly on top of it and going after it.

Josh Pokrzywinski — Morgan Stanley — Analyst

Got it. That’s helpful. And then, just on the timing of what I guess is pent-up demand in Aclara with not being able to get out there in the field. How long does it take to kind of unwind that? Is that something that just takes a couple of quarters? Is it a full year given that there’ll be kind of pent-up for what will be a full year by the end of the day? Gerben, how do you see that kind of unfolding?

Gerben W. Bakker — President and Chief Executive Officer

If I understand the questions correctly, is the pent-up demand going to create some increased future demand? I think there is pent-up demand. I’m not sure, though, that it will lead necessarily to a big spike because one of the things with these projects, to put them in, is labor requirements, labor from the utility, labor from the suppliers. And that’s hard to just make up in the short term. But I do believe that there’s positive growth beyond what would be normally expected in growth, given this slowdown. So [Indecipherable].

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

Yes, I think it would spread out, Josh, between three to four quarters to get it all out there. So, maybe between what you’re asking.

Josh Pokrzywinski — Morgan Stanley — Analyst

Perfect. All right. Thanks for the color, guys. Be well.

Operator

Your next question comes from the line of Justin Bergner from Gabelli Research. Your line is now open.

Justin Bergner — G.research — Analyst

Good morning, Gerben. Good morning, Bill.

Gerben W. Bakker — President and Chief Executive Officer

Good morning, Justin.

Justin Bergner — G.research — Analyst

My first question relates to the sort of medium-term outlook for Utility T&D Components. I guess you mentioned you were lapping a reasonably strong 2020, but looks like the organic growth of average the quarters was slightly over 3% and you’re sort of forecasting something along the lines of the same versus the strong numbers that were delivered in ’18, ’19. Do you see sort of this 3% level as sort of the medium-term outlook even with the secular tailwinds for utility T&D or do you think we could see a rereacceleration looking beyond the next couple of quarters maybe with infrastructure spending or what have you?

Gerben W. Bakker — President and Chief Executive Officer

Yeah, I think you’re generally along the right path of that 3% to 4%. And only a few years back, we would have been ecstatic with that kind of growth in the utility business. You could see it maybe a little bit lumpy and that’s mostly related to our transmission portfolio that we have. But you’re thinking along the right lines of that 3%, 4% growth on a secular basis.

Justin Bergner — G.research — Analyst

Okay, great. And then just two quick ones. The restructuring benefit, is that the $15 million to $20 million of savings, plus another $10 million for lower spend? And then, is all the M&A revenue anticipated in 2021 already acquired or are you anticipating more to come?

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

Yeah. That revenue is already acquired for the M&A piece. And yes, on the R&R, you’ve got both levers working. We anticipate spending a little less. And then, we’re going to get savings off the $0.43 that we spent this year. So, those two are combining for that green bar there.

Justin Bergner — G.research — Analyst

Great, thanks for taking my questions.

Operator

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

Christopher Snyder — UBS — Analyst

Thank you for squeezing me in. We talked about all the big lighting players introducing price increases early 2021. Obviously, there is a looming inflation kind of headwind. So, have you observed any improved price discipline from the many small or low cost players who compete on the lighting side? And then, I guess, just kind of following up on that, what gives you kind of confidence that the price increases can stick? Historically, this has obviously been a very price competitive market. And now, we’re in the maybe middle-ish innings of a downturn.

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

Yeah. So, if you lengthen the lens, there had been a period of price competitiveness that, for the last couple of years actually, there had been some decent push back on that and a curtailment of that and we’ve seen a couple of years of actually getting price in lighting. So, the last quarter or two has been kind of a slip back. And so, it’s a good question as to why we would be confident that that would be arrested after half a year. And the reason is really because of the behavior that we saw among the players. But you’re right to raise the question that time needs to prove how much of that will stick.

And you were asking about kind of the international entrants, and I don’t think we’d expect them to be as disciplined as the group that I was referencing who’ve asked for price.

Christopher Snyder — UBS — Analyst

Appreciate all that I. And then, just last one, following up on the Aclara discussion. It seems like this has historically been, like you guys say, mid-single-digit growth business. And we’re coming out of a year where Aclara is down 15%. So, I think you guys said maybe that pent-up demand gets unwound over four quarters. But if the business is kind of running maybe 20% below where it would be if there was never a pandemic, could that 20% be unwound over four quarters or was there a piece of this that’s maybe just even further pushed to the right and will take longer to come back?

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

Yeah. I think the way we’re planning this is more akin to the last thing that you said. And yet, if you’re asking, is it possible that — it is a lumpier business than we’re used to with power systems. And so, it is possible that things get pulled forward. But I think Gerben was highlighting one of the important parts of this, which is that it’s not really exclusively a demand question. There is also the installation process and having the people to do that and the crews and the time. And so, we are just anticipating that that comes off. It’s not just someone pushing a button and ordering some. It’s got to be installed. And so, that’s why we’re thinking it’s going to be maybe a little smoother than what you’re saying, which is, couldn’t it jump up to double digits for a year and then taper back to 5%, which is how I’m interpreting your question. I just think it will be a little smoother than that.

Christopher Snyder — UBS — Analyst

Appreciate all the color. Thanks for the time, guys.

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

Okay, thank you.

Operator

Speakers, I’m seeing no further questions in the queue. Please continue.

Dan Innamorato — Senior Director, Investor Relations

Thanks, operator. Thank you everybody for joining us, and I’ll be around all day for questions. Thanks.

Operator

[Operator Closing Remarks].

Duration: 61 minutes

Call participants:

Dan Innamorato — Senior Director, Investor Relations

Gerben W. Bakker — President and Chief Executive Officer

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

Jeffrey Sprague — Vertical Research Partners — Analyst

Stephen Tusa — J.P. Morgan — Analyst

Tommy Moll — Stephens Inc. — Analyst

Nigel Coe — Wolfe Research — Analyst

Christopher Glynn — Oppenheimer & Company — Analyst

Josh Pokrzywinski — Morgan Stanley — Analyst

Justin Bergner — G.research — Analyst

Christopher Snyder — UBS — Analyst

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