Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2019 results conference call. At this time, all participants' 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, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your host, Mr. Dan Innamorato. Please go ahead, sir.
Thanks, operator. Good morning, everyone, thank you for joining us. I'm joined today by our Chairman and CEO, Dave Nord, and our Executive Vice President and CFO, Bill Sperry. Hubbell announced its fourth quarter results for 2019 this morning. The press release and slides are posted to the investor section of our website at www.hubbell.com. 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. Please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. 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. Let me turn the call over to Dave.
All right. Thanks, Dan. Good morning, everybody. Thanks for joining us this morning to discuss our fourth quarter and full-year results. You can see from our press release it was another quarter of strong free cash flow generation and solid execution across Hubbell. Not just for the quarter. You really step back and look at our performance over the full-year, and we're certainly pleased with the way our businesses and our employees executed and navigated through. We're really sort of mixed in uncertain markets to generate value for shareholders. We'll walk you through the details of the full-year results later, but we certainly generated exceptional growth and free cash flow and significantly expanded our full-year operating margins despite softer volumes across a lot of our key end markets. All this while we doubled our investment in restructuring activities.
When I reflect on it a year ago, we said that we were going to do EPS with a midpoint of $8 on an adjusted basis, and we delivered $8.12. We said we were going to do free cash flow at 95% of adjusted net income, and we delivered 112% of adjusted net income. All of that, in light of this time last year, the big uncertainty was tariffs. What was that going to do? We've done a lot of other things along the way. We sold a business. We bought a couple of businesses. We got a significant pension obligation behind us. We've had more than we had anticipated restructuring and related costs trying to drive productivity and cost reduction going forward. We've also had some organizational changes.
All of that going on and still delivering above what we committed to a year ago, I couldn't be more pleased with how the organization has responded. We take all that, and we remain focused on improving the things that we can control. We see continued runway on our self-help initiatives, which sets us up for another strong year in 2020, even though we continue to be cautious about our near-term volume. Longer term, we certainly remain confident in our strategy and our market position. We believe we're well positioned to continue to deliver differentiated returns for our investors. Before I get into the key takeaways for the quarter, I want to highlight that we'll be hosting Investor Day on March 3rd in New York.
You've likely received an invitation a few weeks ago. If you're interested in attending, contact Dan, and he can provide you with the details. We certainly hope to see a lot of you there and look forward to giving you some more insight on our overall strategy and all the hard work we've been putting in at Hubbell to position the company for long-term success. You certainly have an opportunity to meet with and hear from a broad range of our senior leadership team, both those who are new to the company and/or in new positions. On that topic, I actually want to point out that we're also joined today on the call by our President and Chief Operating Officer, Gerben Bakker. You'll recall back in June, we promoted Gerben from President of our power segment to his current role.
He's spent a lot of time digging into our operations, especially in our electrical business over the past several months, bringing a lot of the good traits and good experiences that he had that led to the success in the power business to our electrical businesses. I think he's looking forward to sharing some of those insights with you next month. Let me turn now to some of the highlights for the fourth quarter and key takeaways, and I'll start on page three of the presentation. As most of you recall, it was almost two years ago, we discussed a target of generating $500 million of free cash flow by 2020. We're certainly pleased to have essentially delivered on that target a year earlier than we previously anticipated. We'll walk you through some of the drivers of that strong free cash flow a bit later.
The bottom line is we do believe we can sustain this strong conversion level into 2020 and expect to continue to grow off of this base as we continue to focus on our working capital. One of the many benefits of the strong cash flow is that we get to deploy cash to generate attractive returns for investors, and we did that through two bolt-on acquisitions. Those who have followed us for a long time know that this is a key aspect of our strategy, and we're excited to be in the market with a strong balance sheet. We turn to the end markets. Trends here remain mixed. The transmission and distribution continues to stand out. Strong growth driven by ongoing investment in our large utility customers in hardening and upgrading the grid.
On the electrical side, trends were soft exiting the year, most of which we had expected and contemplated, and talked about last quarter in our guidance. We still dealt with some pockets of weakness and uncertainty, which Bill will talk about in a couple of slides. On the margin front, we remain effective in actively managing price costs across the portfolio, which is driving margin expansion despite accelerated investment in restructuring to optimize the footprint and improve productivity. We expect this restructuring activity to generate significant productivity savings over the next several years and drive ongoing margin expansion. Finally, we're initiating full-year guidance for 2020. We'll walk you through those details later, but we see another year of solid earnings growth and cash generation on fairly modest end market expectations. Importantly, the drivers of our performance this year are mostly within our control.
We have a high degree of visibility and confidence in our ability to achieve our targets. A couple other accomplishments in the quarter in our electrical segment. I always like to talk about BURNDY introduced a new PATRIOT crimping tool with a new ergonomic design and Track Transmit technology, which uses an onboard GPS chip and Bluetooth connectivity to capture and map the date, time, and location of a crimp while storing the data in the tool and also transmitting it to the cloud to allow customers to generate custom reports. On the commercial industrial businesses, they introduced a new family of products called JumpCharge, which is a kiosk designed for hospitality, food service, and education markets, allowing customers the ability to recharge their electrical devices for a rental fee. What's different is that it's using portable charging devices.
Two points of innovation, I think that's an area that we look forward to talking more about at Investor Day. With that, let me turn it over to Bill to give you some of the details on the fourth quarter and the year. Bill?
Thank you, Dave, and good morning, everybody. Appreciate you taking the time to join us here. Like Dave, I'm going to use the slides to guide my comments. I'm starting on page four. Just the overview of results of $1.1 billion of sales. Operating margin, adjusted OP margin of 14%, an increase of 70 basis points. Adjusted diluted EPS of $1.91, which is a $0.07 increase over prior year. Dave mentioned the strong free cash flow, $185 million in the quarter and nearly $500 million for the year. Let's dig into the markets and the sales performance on page five. You see at $1.1 billion, that's 4% below last year. I'll remind everyone that when Dave mentioned that we've been selling and buying businesses. We sold our high voltage test equipment business based in Switzerland. That cost us one point in sales growth.
The organic is highlighted here at 3%, and essentially the lion's share of that is the impact of lighting's challenging quarter on volumes. On balance, the rest of the company is actually quite flat. I'll walk through now kind of the individual end markets and show you that we're really starting to see some bifurcation between some of our electrical facing markets versus our utility facing markets. Starting with the electrical side and where we're seeing some of the softness. On the oil end markets, which is where our harsh and hazardous businesses face, we saw double-digit declines in the quarter. On heavy industrial, we also saw high single-digit declines there. In renovation and relight on our lighting business, also saw a double-digit softness there.
Those are notable points of weakness, and they're in quite strong contrast to the electrical transmission and distribution end markets, where we're seeing very strong growth. Transmission a little bit stronger than distribution right now. We see our customers in those markets continuing to make upgrades and harden their grid and their infrastructure, and continues to provide a very good underlying source of growth. With that organic of -3% sales, let's turn towards how our earnings performed. I'm going to page six. Starting with our adjusted operating income, you see flat dollars year-over-year, supported with a 70 basis point margin expansion to 14% in the fourth quarter. Really, this is the result of two pairs of offsetting drivers that I wanted to walk everybody through.
The first set was a benefit that we earned from being granted some tariff exclusions on a very narrow amount of SKUs. Those exclusions provided us approximately a one point margin tailwind, and we reinvested that one point in incremental restructuring in the quarter, which is going to benefit future earnings through cost takeouts. The second pair of drivers, we more than offset the decrementals from the lower volumes that we discussed on the prior page with highly effective price cost management. That price cost management has been a trend that we've been discussing with you throughout the year. This tariff exclusion is a new dimension, so it's worth a quick comment. As Dave described, as we started the year, we were managing our tariff headwinds primarily through price, but we were also focused on supply chain realignment as well as vendor management.
In this quarter, we were able to deploy the tool of approaching the U.S. Trade Commission, both directly and through our associations with industry groups, and got some very specific SKUs excluded from our tariff calculations. The result of that was reduction of expense in the fourth quarter that will largely repeat next year. We'll have comparable tariff expense in 2020 versus 2019, but we'll create, so for the full-year, quite a comparable picture. In the fourth quarter, essentially in 2019, that benefit was all concentrated and being recognized in one quarter. On the right side of the page, you see our adjusted earnings per diluted share. The $1.91 is a 4% increase or $0.07 over last year. The higher OP gave us about $0.02 and the lower effective tax rate and lower interest expense gave us about a nickel.
Tax rate on adjusted basis in the fourth quarter of this year of about 21.3%. The free cash flow that Dave mentioned, helping us reduce our debt that we took on associated with the acquisition of Aclara and is getting us a lower interest expense. We'll take that performance and disaggregate it into our two segments. On page seven, let's start with the Electrical Segment. You can see sales down 7%. This segment is where the divestiture of high voltage test equipment was located. On the organic side, you see roughly 6% decline, with $618 million of sales generated. The areas of notes of weakness, lighting, down double digits. Heavy industrial and the harsh and hazardous serving oil markets.
That weakness in those three areas really masking some of the growth that we experienced on our connectors and grounding business as well as in our wiring device business. On the performance side, we overcame that volume decline with 80 basis points of margin expansion to keep the dollars of OP essentially flat. That's the story that we told of overcoming the volumes and the higher investment in restructuring with the tariff exclusion and the price cost benefits. Page eight, talk about the power segment. You'll see 2% sales growth to $485 million. An increase of 20 basis points of margin to 15.4% to drive a 3% increase in adjusted operating income to $75 million.
I think it's worth disaggregating the two components of our power segment between the legacy power systems business that you're all more familiar with, where we grew at mid-single digits versus Aclara, which declined at mid-single digits. You see that had an offsetting dampening effect on the overall sales growth. Also of note, that 20 basis points of margin expansion was achieved, including investing an extra one point in higher restructuring, and so that price cost management proving to provide the extra lift to drive that margin expansion. I think it's worth a comment on Aclara, just because of the lumpiness of their business of the quarter at down mid-single digits feels out of step with what we've been talking about. I think adding a little more context is helpful.
For the two years now that we've owned Aclara, the business has grown double digits. Our outlook is for it to continue to grow healthily in 2020 and beyond. The mid-single digit decline is largely attributed to a very, very difficult compare in Q4 when they had very, very strong growth back in the fourth quarter of 2018. When we look at their sequential sales throughout 2019, it has a quite normal seasonal sequential look. I think it's worth commenting as well that beyond volumes at Aclara, we're quite focused as well on growing specifically the AMI and communications portion of that business.
It was a good sign to see order growth in the fourth quarter there, as well as seeing some progress with some customers on advancing the future growth of that business that we think has a multi-year story to it that we're quite looking forward to. I think it's also helpful because that fourth quarter's got quite a few moving pieces in it to step back and on page nine, really look at the full-year results. You'll see net sales growth of 2% to approximately $4.6 billion. The growers for the full-year are Connectors and Grounding business, our natural gas business, and our Power Systems business all up mid-single digits. On the declining side, harsh and hazardous, and the lighting business, dampening some of that growth a little bit. I think great to see the operating leverage throughout the business.
2% sales growth resulting in 4% operating profit growth, driving 5% earnings growth and double-digit free cash flow growth. Those are trends we'd like to continue. The operating profit outgrowing sales, obviously coming with margin expansion of 30 basis points. That's all in the gross margin through price cost management. Of note, you'll see we refer to the restructuring and related spending that we did last year versus this year. That's where Dave was mentioning kind of the doubling of that investing that we did. Able to expand margins and invest in next year's and beyond margins, I think, are a really good sign. On the restructuring front, it's just worth commenting that the majority of that $37 million was in footprint realignment. I would say about a quarter of it invested in some headcount reductions.
The fourth quarter softness in sales required us to reduce headcount, and again, invest in next year's earnings. The result of that, we see as ultimately driving about $15 million of savings next year from that $37 of spending this year. Two and a half year payback, we think is attractive paybacks, and important for us to keep investing there. The free cash flow is also worth commenting on. We obviously had higher OP, a roughly comparable amount of CapEx. The higher OP was complemented with some working capital management, most notably on the receivables and inventory side. That cash flow obviously helps us restore our balance sheet, post borrowing for Aclara. Page 10, I think is a good outcome of that, where you'll see that we'd essentially been digesting and integrating the Aclara acquisition for the past seven quarters.
As our balance sheet got de-levered down to the two times debt to EBITDA neighborhood, I'm very happy that we've been able to jump back into the bolt-on acquisition part of our value proposition. We just noted here two acquisitions made and closed in the fourth quarter. The first is Cantega, which is inside of our power systems business, an asset protection company, trades under the name Green Jacket. You can see the pictures there of custom fit covers that help the substations perform against wildlife and other environmental incursions. Off to a really great start, really happy with that. The aptly named Connector Products Inc. fits inside our connectors and grounding business line. You see a picture there of the wedge tap and also do splices.
Noteworthy about the product line is it's easy to install, doesn't require any specialized tools, so really complements our existing business. These two businesses both being very high margin, above average for Hubbell averages. Deploying kind of the sales proceeds from a high voltage business into these high margin businesses plus some extra cash flow, we think is good value creation for the future. You'll see when Dave talks about our outlook, you'll see some contribution from these two deals. With that, Dave, I'll turn it back to you to cover our outlook for 2020.
All right, great. Thanks, Bill. I'm on slide 11. Talk first about the end markets and our outlook there. When we look into next year, continue to see some mixed trends in our end markets. Few puts and takes. Netting overall to modest growth. Starting in the upper right, our electrical T&D continues to be a strong market, up 3%-4%. Continue to see strong demand in that environment with solid growth, even off difficult compares. The residential market, up 2%-4%. Market indicators more recently have gotten more positive, and we're pretty confident in being able to deliver some nice growth here in 2020. The non-residential, we've got it at 1%-2%. Continue to expect growth in non-res new construction.
This section of pie chart also embeds what we anticipate to be some continued softness on the renovation side of the lighting, which could last through the first half of the year. Industrial, that's ±2%. Market softened through the back half of 2019, particularly on the heavy industrial, and we haven't yet seen signs of a material pickup. Our base case is plus or minus a couple points with the heavy industrial remaining softer, light industrial holding up. On the oil side, right now it's ±2%. Markets are weak throughout 2019. I think oil prices have come down. We've seen somewhat stable for now off the low levels with some smaller project activity, but no signs of an inflection. That will continue to be a challenging market. In gas distribution, +1% to 3%. Market drivers remain strong.
We expect some moderation to low single-digit growth after a multi-year period of strong growth. Turning to slide 12. All that turns to our guidance, where we expect all of that to contribute net sales growth of 1%-3% for 2020, about in line with our expectations for modest end market growth. The acquisitions that Bill talked about on the previous page, expected to fully offset the divestiture of the HAEFELY high voltage test business next year, at least on the volume side. We expect 2020 adjusted earnings per share to be in the range of $8.50-$8.80. This includes another $0.40 of restructuring investment. We're seeing good returns on our footprint projects that we started in 2019, and we expect to continue to invest here. I think that next year, maybe with our current footprint, maybe the last year at the $0.40 range.
M&A activity would bump that up, as we would invest more in right-sizing new entities coming in. The restructuring that we did this year, in fact, Bill mentioned we expect $15 million of incremental restructuring savings next year, ahead of our initial expectations. On the free cash flow front, expect another year of strong cash generation at 110% of adjusted net income, as we continue to effectively manage our working capital. Turning to slide 13, you put all this together in graph form. We just talked about the modest contribution from volume growth, we also see significant tailwind from our restructuring initiatives in 2020. We also see some modest EPS tailwind from M&A despite our expectation for the neutral sales impact, as we've traded lower margin business for the higher margin business through our active portfolio management.
Below the line, we see tailwind from lower interest and pension expense, partially offset by a slightly higher tax rate. Finally, there's a couple of non-fundamental headwinds from a couple sources. First, as Bill noted, the tariff exemption we received is an ongoing benefit which lowers our run rate cost basis, but some of that related to cost incurred in 2018, that doesn't repeat. Small piece, but it's something that we'll deal with. Second, we made a decision as a company with our board, to change the timing of our long-term incentive grants from the fourth quarter to first quarter, really to be a practice more prevalent across the marketplace. We were somewhat out of step in doing it late in the year.
Results, what that means is that in the first quarter of 2020, there'll be a cost associated with that that would typically be in the fourth quarter. Certainly, the fourth quarter impact was offset by higher short-term incentive, so there was really no benefit in the fourth quarter. Instead of having the cost that typically would be in the fourth quarter, it'll be in the first quarter this year of $0.10. That's going to affect our calendarization. I just want to make sure that we had that out there. With that, where all this is going to net to our midpoint of 7% earnings growth off relatively modest volume equation, which we think is a good start to the year. We look forward to doing this or better, similar to what we saw in 2019. With that, let me turn it over for some questions.
Operator?
Yes, sir. Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. First question is from Jeff Sprague from Vertical Research Partners. Line is open.
Okay, good morning, everyone.
Morning, Jeff.
Morning. Can we just dig a little deeper into the utility side of the equation, and particularly kind of the Aclara versus the base business. First on Aclara, there's been some chatter of kind of AMI deployment delays out there. I was wondering if that was either part of the issue in the quarter or does that in any way affect your outlook? Obviously you didn't have Aclara in the organic base last year, but can you give us an idea of the magnitude of the comp you were going against in this particular quarter?
Yeah, Jeff. Starting with the comp, it actually grew about 50% in the fourth quarter last year, so very dramatic growth last year, and a testament to some of the lumpiness of the projects that they work on.
Okay.
As far as the regulatory items, not things that affected us in the quarter. We did enjoy some AMI order strength in the quarter, and does not affect our medium-term outlook either.
I think, Gerben, maybe you want to add some color.
Yes. Good morning, Jeff. On the question specifically on the AMI delays. Delays in regulatory approvals are common in the industry. These are generally very large and complex projects, both technically and commercially. The degree of regulatory difficulty can also vary significantly based on the geography, as these are often set at state and municipal levels. While there certainly may be references in the market to delays, we are really not seeing evidence that the overall regulatory landscape has changed. We do encounter the delays ourselves in our business, but we do not see them to be material for us right now. Certainly for us, geographical diversity helps, as does the multi-utility. We serve both the IOU as well as the co-op and municipals, and we also serve both electric, gas and water.
It's pretty spread that can help offset some of these lumpiness that you can see with some of these larger products that are subjected to regulatory scrutiny.
Could you also speak to the Aclara backlog? You had a big starting backlog when you acquired the company. Have you been able to keep that topped up along the way, or are you actually drawing on backlog now?
Yeah. That backlog will certainly shift as some of these larger projects come on and off, but fundamentally, we feel the backlog still it's a little bit short of that billion dollars that we had talked about. More importantly, though, what we look at is the qualified pipeline, and that we're actually seeing growing right now. We feel we are very well-positioned to realize this growth. We had recent wins with our Aclara RF Communications Network AMI platform, including a major utility co-op as well as a couple of pilot programs that we've launched with large IOUs. This gives us confidence that we're well-positioned to serve the significant opportunity in the next several years, really, as the IOU customers upgrade their first-generation AMI systems to the next generation.
Great. Just one other, if I could, just in general. I'm sorry if I missed it in the opening remarks, what are you anticipating in your guidance for kind of the carryover benefits from the restructuring actions you took in 2019 and any benefit that you might get from the plan 2020 actions?
Yeah. We think we've got $15 million of benefit, Jeff, of real savings in 2020 that are coming off the spending that we've done recently, and most of that was from investments done in 2019.
Okay, great. Thank you.
Next question is from Steve Tusa from JP Morgan. Line is open.
Oh, hi. Good morning, Dave. Good morning, Bill. This is actually Pat Bannon for Steve Tusa. Thanks for taking my question.
Okay.
Just curious on the end markets for the fourth quarter. What did they look like from a growth perspective versus the 1%-3% you expect for 2020? Along those lines, how do you expect the profile to look first half versus second half for this year for the end markets?
Yeah. The end markets netted out ex lighting to be very flat in the fourth quarter. We're expecting that to be in that 1%-3% range for next year. I think you're right to point out that we do anticipate having some easier compares in the second half versus the first half as a result of that.
Is there anything from a first quarter perspective we should be aware of other than the incentive comp that I think you said is a $0.10 of headwind? Anything else for the first quarter we should be aware of?
I don't think there's anything that stands out specifically. I do think that some of this lighting volume can carry into some softness on the electrical side. I think we'd expect the utility strength to carry through. I think despite that headwind from the LTI, I do think we should be able to absorb that and grow earnings slightly in the first quarter year-over-year.
Okay. Following up on Jeff's question, I don't think you answered this part of it. I'm not even sure he asked this part, what's your expectations for Aclara growth in 2020 versus the core T&D business? I think you said 2%-4% for the end markets. Just curious how those two parts of power shake out versus one another in terms of the guide.
We're expecting Aclara to be able to grow mid-single digits.
Okay. Great. One last quick one for me. What was price in the quarter year-over-year contribution to revenue?
Yeah, we got a couple points of price.
Okay, great. Thanks so much.
Okay.
Next question is from Nigel Coe from Wolfe Research. Line is open.
Thanks, guys. Good morning.
Morning, Nigel.
Yeah, Patrick just took most of my questions there. We'll see what's left over there. Going back to Aclara, just to be clear, obviously, you had a very tough comp in 4Q. You expect to be back to growth in 1Q. The comments on the corporate backlog still up. How does your backlog kind of coverage for 2020 compare to last year, say?
Yeah, there's really two components of the funnel that Gerben was referring to, right? The very near term is the backlog, and then if you go slightly farther back-You'll get into the pipeline. As Gerben was saying, the activity at the front end of that funnel on pipeline continues to grow, and then what enters into qualified backlog, that can get consumed or added to, depending. I think the near-term backlog is down just a little bit, but it certainly doesn't dim our expectations for 2020 or beyond.
Okay. The 1Q, you think back to growth in 1Q? Putting too fine a point now.
Yeah, I think we've still got a tough comp in the first quarter for Aclara, and then I think the remaining three quarters will be where we see the growth.
Okay. The performance in electrical during the quarter, I think you said flattish across the end markets, ex lighting. Lighting obviously down kind of mid-teens. Would that be the right number?
Yeah. Little bit less than that, but double digits, yes.
Yeah. Okay. Can you just talk about the impact of channel inventories, not just for lighting, but across the spectrum there. What's your perspective in terms of where they currently sit versus normal levels?
I didn't understand that. What's the question?
Yeah. The channel inventories. To what extent are we still suffering from channel headwinds? Inventory headwinds.
Yeah, I think that at the beginning part of the year, with some of the tariffs and the pricing that was going in, Nigel, I think you're right to point out that we thought there was probably some buildup in the channel of inventories. There's evidence of some of that persisting a little bit, but that sounds almost like an excuse, Nigel. I think we feel that that's straightened itself out for the most part.
Yeah, I think the other side of that is going into 2019, I think the channel was a little bit more cautious, and was concerned about a downturn. We had a lot of conversation that tariffs were going to cause recession, and therefore, they wanted to get their inventory levels down. The conversations that I've had with our channel partners, generally optimistic, positive on 2020. I think that has taken a lot of that pressure off, at least broadly. There's still pockets of those who might want to be shifting some of their inventory and getting the same focus on cash flow that we have. I don't see anything in there that's meaningful.
Great. There's a quick one on pricing. Two points of price, obviously very strong. How does that look in 2020? Do you think you'll still get positive price?
Yeah, I think as it wraps around, Nigel, it'll taper off. We're not expecting that to be a steady state of two points of price.
Okay. Thanks, guys.
All right.
As a reminder, for participants, please limit to one question and one follow-up to give opportunities to others. Thank you. Your next question is from Deepa Raghavan from Wells Fargo Securities. Line is open.
Hey, good morning.
Morning, Deepa.
Question on your residential market expectations. Your expectations, 2%-4% in market, better than fiscal 2019's, flat 0%-1%. That end market has lighting business in there as well, right? Just curious how you're thinking about how the lighting business trends in fiscal 2020, and how rest of residential, ex lighting actually feeds into the 2%-4% expectations.
Well, I think that, first of all, the residential component of our business is substantially lighting. That's the big driver to it. As you know, a lot of that, some of the positive outlook is based on housing starts. I think most recently at the home builder show, the really positive sentiment on home builders. For us, obviously, that has a little bit of a lag to it. We're typically a two-quarter lag to the starts. I think some of that will start to see its way through to the business in the second half of this year.
Okay. All right. You're expecting lighting to do better in fiscal 2020. All right. My follow-up would be on your price. You said it's 2% of price, guiding to for fiscal 2020, it fades away. Last year or two, you got I think you were guiding to 2% of price, and most of that was end markets, right? Just 1%-3%. Your volume expectations are still flattish within your end market expectations this year versus last year as well. Is that right?
No, I'd say our end market volume expectations are mostly a volume expectation. It encompasses very little price. Just kind of the wraparound effect.
Okay, got it. It's 1%-3% in markets plus 2% price. That's how to think about it?
It's not +2 % price. We said pricing wraparound is limited. We're not betting the price.
Got it. Thank you so much.
Okay.
Question is from Robert McCarty from Stephens Inc. Line is open.
Good morning, everyone.
Hey, Rob.
Congratulations on the strong execution on cash. I guess the first question I would have is just around lighting, more of a broader question. Clearly, this is a business that you've been invested in and acquired over the last 20 years, I think starting with LCA back in 2002. Over the course of time, there's been a lot of promise for the business for a variety of reasons, but right now it seems you've had a competitor sell the business. I think you've had some leadership leave the company to run a different lighting business. What's kind of the state of play strategically for that business going forward for you? Do you think you have to have a higher bar for a return profile for a business, and would you consider some form of separation or divestment in the near- term?
A lot in there, Rob, but we go way back, so we share the history on this. Certainly, the lighting business has always been challenging, and nothing's changed there. I think we've done some good things to continue to improve that business. There is a level of frustration that I certainly have because the market is tough. I think that some of the things that we've done have strengthened that business, and it's well-positioned to continue to improve. I think we've made some of the management changes have allowed us to do some things differently. I think we're going to be prepared to talk about some of those things next month at Investor Day. It certainly is not one of our higher-margin businesses, yet it's still providing a decent return. I think it's adding value to shareholders.
I think, as with all the businesses, but certainly with the changes going on in the lighting industry, if there was an opportunity to create shareholder value that was more valuable for us than running it, that always has to be considered. Right now, we think it has a lot of opportunity to continue to add value and to improve. We're going to continue to do that.
Turning to probably a more attractive topic, which would be the solid outlook for transmission to distribution spend. Looking at long-term growth rates and growth rates as a whole, it sounds like the traditional legacy business is very well-positioned for continued growth. The more AMI smart metering certainly has a great runway for growth, maybe on a market basis, a little bit lower than that. I guess from your comments, you're actually suggesting Aclara is going to grow mid-single digit this year. There should be some penetration with some IOUs and probably some secular growth tailwinds with Aclara. Despite the fact that you already have 3%-4% growth there, do you think there's even upside to that number?
Do you think you could be growing, given the trends that you're seeing now in mid to high single digits or a sustainable growth rate over a longer period of time? In other words, do you see the potential for an inflection point there for growth over a three to four-year period?
Robert, I say yes, we do. What we've said is, particularly on the AMI, it's a much longer sales cycle. It's a little lumpier. Getting the acceptance of the AMI systems takes time. The good news is that we've had some good success there with proven capability with some meaningfully sized utilities, that provides a sound basis. On a run rate basis, certainly, I think we could see mid to high single digits over time, as Gerben mentioned, it's a lumpy business because it's got that project orientation. Until you get a broad enough portfolio that makes that sort of smooth out, we're going to see that. Certainly, I think there's really good upside in the future based on the investments being made.
Thanks for your time.
Okay.
Next question is from Josh Pokrzywinski from Morgan Stanley. Line is open.
Hi, good morning, guys.
Hey, Josh.
Dave, just to follow up on Rob's question on the T&D space or kind of utilities at large. We've been in this outsized environment. I'm wondering how much of this is kind of catch up for years of underinvestment versus a structural change in the way utilities spend money or kind of view the investment cycle. Is there any way to parse out how much of what you're seeing today is just kind of making up for decades of underinvestment versus something that's a little bit more proactive and sustainable?
Well, I think you can't argue that there's been decades of underinvestment. That's a fact. The question is: what are they then when it comes time to invest? Is it investing in replacing legacy products, or is it going to the next level of new technology? That's a little harder to split out and identify which way it's going.
I think what is clear is that there's a recognition of a need to invest more, and that's positive, and it's positive for all parts of our business, and we want to make sure. Honestly, that was one of the strategic bases for the Aclara acquisition to give us the opportunity and the capability to participate more effectively on the automation side.
I would add to what Dave said, I certainly think prior under-investment in it. The other thing that's adding to this is the integration of renewables, and that's certainly putting a lot of strain on the existing grid. What the utilities are looking for is how to better operate the grids that they have and maintain, and that's where some of the Aclara technology, and even more importantly, when we bring together the legacy portfolio with Aclara, that we can help serve that need to modernize the grid and really run the grid more efficiently.
Got it. That's helpful. Just one quick follow-up for Bill. Can you remind us, sorry if I missed it already, how much of the tariff relief is ongoing versus what was kind of recaptured from earlier in 2018 and 2019 in the fourth quarter?
Yeah, I would describe the exemptions as capturing roughly six quarters of activity. The majority of that carries forward through 2020. They technically expire in October, so we'll be recognizing that benefit kind of evenly throughout 2020. There's about a third of the total that was associated with that actually happened in 2018. That would be the non-recurring piece.
Got it. Understood. Thanks.
Next question is from Justin Bergner of Gabelli Funds. Line is open.
Oh, hi. Good morning, David. Good morning, Bill.
Good morning.
Just a couple clarification questions. On the transmission and distribution end market view, if Aclara is growing mid-single digit, does that mean that your legacy T&D business, you have a view towards it growing below mid-single digit to sort of average out to that 3% or 4%, or am I missing something?
No, you've got it right. The distribution piece, if you unpack it, is about two-thirds of our volumes and transmission about a third. We've expected that D, over the long- term, has been kind of a grows in GDP line. I think Josh and Rob's questions about it's doing stronger than that, which is some underspending from past and, as Gerben was saying, some new automation areas. I think that if you disaggregate those pieces, you've got it right. The T&D part of our power segment is significantly larger than the Aclara piece. You can't just average the two growth rates. You have to apply a higher weighting, obviously, to the power systems piece.
Okay, great. Thank you. On the tariff piece, just to fully understand it, you said it expires in October. Does that mean that, I guess this $0.025 per quarter benefit that you will enjoy in 2020 will not repeat come 2021?
Well, it would be subject to whether or not the exemptions are re-granted or not, and that starts to all fit in the background noise of how we're managing price cost.
Right. Gotcha. All right. Lastly, on the restructuring side, it looks like you expected to come in this year around $0.40 of restructuring, you ended up around $0.50, that offset the $0.15 benefit in the fourth quarter. Is my math sort of in the right ballpark?
Yeah, we spent more than we had planned by about $0.11. That was all happened in the fourth quarter. Some of which continued to be footprint realignment that we've been focused on all year and will continue to be focused on, and some of which was a little bit shorter term headcount related, that was in response to some soft volumes we experienced in Q4.
Great. Thanks for taking my questions.
Okay.
I am showing no further questions at this time. I would now like to turn the conference back to Mr. Dan Innamorato.
Thanks everyone for joining us. I'll be around all day for follow-up calls if you need me. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you again for your participation. You may now disconnect.