Fitch Affirms Hubbell's Ratings at 'A/F1'; Outlook Stable
CHICAGO -- May 11, 2012
Fitch Ratings has affirmed the ratings for Hubbell Incorporated (NYSE: HUB/B)
including its Issuer Default Ratings (IDR) at 'A/F1'. The Rating Outlook is
Stable. A full list of rating actions follows at the end of this release.
The ratings are supported by Hubbell's solid, strong operating performance
including healthy margins and positive free cash flow (FCF), established
position in niche markets, good product diversification, and steady operating
margins through economic cycles. The company maintains sufficient financial
flexibility to deploy excess cash for mid-sized acquisitions and / or share
repurchases. Leverage (debt to EBITDA) has been relatively stable at solid
levels for the rating and was 1.14x at March 31, 2012, down from 1.32x at the
end of 2010. Fitch expects Hubbell to maintain leverage within its recent
The company generated approximately $190 million FCF in 2011, up from $133
million in 2010. The increase was driven by higher sales and strong operating
margins. Fitch expects the company to generate approximately $170 to $200
million FCF annually in the near future, reflecting effective cost controls
and a recovery in Hubbell's primary electrical and power markets.
Discretionary cash deployment is largely directed towards acquisitions,
although the company also makes share repurchases to offset dilution. Fitch's
ratings incorporate expectations for continued moderately-sized acquisitions,
growth in the dividend payout and a near term increase in capital expenditures
to support growth in emerging markets.
The company contributed $23 million to domestic and foreign qualified plans in
2011. Hubbell is not required to make mandatory contributions to its US
qualified pension plans in 2012; however, it plans to contribute approximately
$2 million to foreign plans. Hubbell's global pension plans were underfunded
by $185 million at Dec. 31, 2011 compared to $100 million at Dec. 31, 2010.
Much of the deterioration in the funded status of the plans was attributable
to lower discount rates
Rating concerns include a slow recovery in the company's construction markets,
commodity price fluctuations which may affect Hubbell's profitability and
acquisitions which involve integration risk and the potential for an increase
in leverage. These concerns are mitigated by the company's disciplined
acquisition strategy and solid liquidity. The ratings or outlook could be
negatively affected if Hubbell undertakes a large debt-funded acquisition
which results in a significant weakening of its credit profile or if operating
results deteriorate due to an economic downturn. However, Hubbell adjusted
effectively to the previous recession and can be expected to weather future
business cycles. The potential for an upward revision to the ratings is
limited in the near term due to uncertainties surrounding the global economy
and the company's small scale relative to some of its peers.
Fitch expects Hubbell's revenues to increase in the mid-single digit range in
2012 due to improving demand in the industrial and utility end markets. Margin
should benefit from improving pricing and ongoing cost controls. During the
first quarter of 2012, Hubbell's revenues grew approximately 10%, reflecting
growth in most of its end markets. Economic weakness and challenging financial
markets in Europe are not expected to have a material impact.
Liquidity at March 31, 2012 was comprised of $562 million of cash and a $500
million bank credit facility that matures in 2016. The company has a
conservative debt structure, with no significant maturities scheduled before
Fitch affirms Hubbell's ratings as follows:
--Issuer Default Rating (IDR) at 'A';
--Senior unsecured credit facilities at 'A';
--Senior unsecured debt at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
The ratings affect approximately $600 million of debt outstanding at March 31,
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'2012 Outlook: U.S Diversified Industrials and Capital Goods' (Dec. 14,
Applicable Criteria and Related Research:
Corporate Rating Methodology
2012 Outlook: U.S Diversified Industrials and Capital Goods
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