Manufacturers See Single-Digit Growth

April 22, 2011
It's earnings report season again, and the financial reports for the first quarter of 2011 now being published by publicly held electrical manufacturers

It's earnings report season again, and the financial reports for the first quarter of 2011 now being published by publicly held electrical manufacturers are painting a picture of 2011 as a year of steady but not spectacular growth. When you read between the lines of the financial documents and reams of public relations mumbo-jumbo, it's quickly apparent that growth this year for many of the largest publicly held manufacturers is closely tied to how quickly the commercial construction market pivots into growth territory. Several senior executives said that magic moment should occur sometime in the second half of 2011.

One of the most encouraging financial reports for 1Q 2011 came from Eaton Corp., Cleveland, which enjoyed an 80 percent increase in net income per share in 1Q 2011 over the same period last year. The company's Electrical Americas and Electrical Rest of World business segments (which in 2010 accounted for 36 percent of the company's $13.7 billion in total revenues) were key contributors to this growth. Sales for the Electrical Americas segment were $964 million, up 20 percent over 2010, and sales for Eaton's Electrical Rest of World segment were also up big time — registering a 22 percent gain over the first quarter of 2010 to $743 million. Commenting on Eaton's first-quarter results, Alexander “Sandy” Cutler said, “We saw solid growth in our industrial markets, and we continue to believe nonresidential construction activity is on track to begin recovering by the middle of this year.”

Hubbell Inc., Orange, Conn., also announced a double-digit sales increase for the first quarter, with net sales of $658.1 million, up 15 percent compared to the $570.5 million reported in the first quarter of 2010. Operating income, earnings per diluted share and free cash flow were also up significantly in the first quarter YTY. Timothy Powers, chairman, president and CEO, said the company is increasing its 2011 sales forecast and now believes its annual sales will increase by 5 percent to 7 percent for the year.

Rising commodity prices are a concern for the company. Powers said prices for certain types of steel have increased on average by 30 percent to 40 percent compared to the fourth quarter of 2010. “We are working to offset commodity cost increases through pricing actions but the timing of recovering those costs tends to lag by at least one quarter,” he said. “We remain confident that we should be able to navigate through these cost challenges to produce record earnings in 2011. Looking beyond the current year, we are excited with the prospect that fully half of our markets, non-residential and residential construction, are expected to return to growth following historic slumps. In addition, we expect strong growth in both utility transmission spending and energy-efficient buildings, including LED lighting applications.”

Astronomical increases in steel prices were also a concern for Acuity Brands Inc., Atlanta, which raised its prices 5 percent to 7 percent at the end of February to counter the 45 percent increase in steel spot prices during 2011's first quarter. Net sales for the first six months of the company's 2011 fiscal year increased 8.5 percent to $841.2 million, compared with $775.2 million for the prior-year period.

Vernon Nagel, chairman, president, and CEO of Acuity Brands, said it was the fourth quarter in a row where Acuity achieved unit volume growth in an environment where U.S. non-residential construction continued to decline. He said third-party forecasts for the North American nonresidential lighting market say this segment of the lighting market will grow in the low- to mid-single digit range for the remainder of the company's fiscal year. “We continue to see opportunities in the current environment,” he said. “These include growth in renovation and tenant improvement projects, further expansion in under-penetrated geographies and channels, and growth from new product introductions and lighting solutions. We continue to enjoy success in building our lighting controls platform and we are now realizing the benefits and synergies of our investment in this exciting and fast growing market.”

Dominic Pileggi, chairman and CEO, Thomas & Betts Corp., Memphis, Tenn., also expects the nonresidential market to start growing in the second half of 2011. In announcing the company's financial results, he said, “We are seeing improvement in nearly all of the end markets we serve. Our outlook is for continued recovery in industrial markets and elevated utility distribution spending. We expect growth in residential, institutional and industrial construction, albeit at levels somewhat lower than we observed in 2010. The second half of 2011 should see the multi-year deterioration in commercial construction cease and activity levels flatten out.

“While we remain bullish on the future outlook for utility transmission spending, we believe 2011 will show only modest growth and will remain highly competitive… Based on our outlook, we anticipate that Thomas & Betts sales will grow in the mid- to high-single-digit range for the full year 2011.”