The ratings and Outlook reflect Fitch's expectations for solid operating performance over the longer term, despite near-term organic growth headwinds. Recent acquisitions will augment top line growth and ongoing integration will drive profit margin expansion. Annual free cash flow should exceed
Fitch expects acquisitions to drive low- to mid-single digit revenue growth for 2014. Organic growth will be tepid with strong demand from higher building permits and retrofits in residential lighting markets offset by minimal growth in non-residential markets. Within the cyclical but more profitable industrial businesses, high voltage will be down but offset by positive demand in harsh and hazardous.
Fitch believes long-term demand drivers remain intact and expects low single digit organic revenue growth. Non-residential and residential lighting markets will benefit from retrofit demand. The Power segment will benefit from an aging utility infrastructure, although growth will be metered by funding constraints. Rig growth will continue driving industrial demand.
Fitch expects operating EBIT margin in the mid to upper teens through the cycle. Solid profitability and lower working capital requirements during a downturn will drive more than
Fitch expects Hubbell to use FCF mainly for acquisitions, spending for which totaled
Fitch expects credit protection measures will remain solid for the rating. Fitch believes Hubbell's total debt to operating EBITDA will remain below 1.5x. Leverage has steadily improved since
KEY RATING DRIVERS
The ratings are supported by: i) consistent annual free cash flow (FCF) through the business cycle; ii) solid credit protection measures, driven by steady profitability and conservative financial policies; and iii) diversified product and customer portfolios.
Fitch's concerns include: i) significant exposure to residential and non-residential construction markets, which remain at pressured levels despite more recent upturn in residential; ii) vulnerability of gross profit margin to commodity price fluctuations, requiring an ongoing ability to increases prices; and iii) large customer base in long-cycle businesses that typically recover from recession more slowly.
Positive rating action is unlikely in the absence of a commitment to maintaining more conservative financial policies, given the scale of Hubbell's FCF and financial flexibility necessary to support acquisitions.
Negative rating actions could result from: i) sustained periods of negative organic revenue growth, signaling less competitive market positions or ii) profitability pressures, either as a result of poor acquisition integration or exacerbated pricing pressure, resulting in expectations for annual pre-dividend FCF below
Fitch believes Hubbell's liquidity was sufficient at
Fitch expectation for more than
Fitch affirms Hubbell's ratings as follows:
--IDR at 'A';
--Senior unsecured credit facilities at 'A';
--Senior unsecured debt at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
Additional information is available at www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
Most Popular Stories
- Rackspace Ends Talks About Possible Acquisition
- Mercedes Rolls Out S550 Plug-in Hybrid
- FedEx Adding 50,000 Holiday Jobs
- Toxic Algae Threatens Florida Fishing, Tourism
- Plus-Size iPhones Live Up to The Hype
- Missouri GM Plant Adding 750 jobs
- Family Dollar Spurning Bid From Dollar General
- Cool Features on Today's New iOS 8
- Kohl's Hiring 67,000 for the Holidays
- Poverty Rate Drops for First Time Since 2006