Good morning. My name is Amanda, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the second quarter 2018 results conference call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. Ms. Maria Lee, you may begin your conference.
Thanks, Amanda. Good morning, everyone, thanks for joining us. I am joined today by our Chairman, President, and Chief Executive Officer, David Nord, and our Senior Vice President and Chief Financial Officer, William Sperry. Hubbell announced its second quarter results for 2018 this morning. The press release and earnings slide materials have been 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 the earnings slide materials.
Let me turn the call over to Dave.
Okay. Thanks, Maria. Good morning, everybody. Thanks for joining us. You can see from our press release that we had a strong quarter performance for Hubbell, that's obviously reflected in our results. It was just a couple of months ago at EPG, we said we remain confident in our ability to meet or exceed our expectations for the full year. I'll tell you, we're even more confident today, as you can see in the second quarter results, and the guidance raised for the full year, which we'll walk you through a bit later. Bottom line today is we continue to feel good about the overall markets and our ability to deliver on our commitments. Before Bill gets into the details on our results, I just wanted to spend a few minutes on what we see as some of the really key takeaways from the second quarter performance.
It's starting on page three. First, our end markets continue to trend positively. Not only are all of our end markets growing, but they're each growing at the high end of the range we previously laid out, and we're taking our overall end market growth assumption up from 2%-4%, to 3%-4%. Price material cost, in line with expectations. We continue to trend well overall. Certainly saw a little bit more headwind from material cost than previously anticipated, but that's more than offset by the additional pricing actions, which we're seeing good traction on in the marketplace. On Aclara, we continue to see strong execution in the largest acquisition in Hubbell's history, with results trending ahead of expectations on better sales and integration performance.
Our free cash flow was strong in the quarter, and the good news is we're back on track for the year after a softer first quarter, and we continue to expect to deliver in excess of 100% of net income for the year. Finally, we're raising our 2018 adjusted EPS guidance, reflecting our increased confidence in our underlying business performance. Now, we note that this guidance raise is inclusive of the impact of some of the tariffs that have been put in place, specifically Section 301 on List one and List two. We're doing that through offsetting mitigation actions and including price increases. Also, that guidance absorbs the previously disclosed Aclara accounting change. Remember where we talked about we had to reclass some of our previously thought of as CapEx to R&D expense.
We think that the ability to raise guidance while absorbing these items is certainly reflective of the strong performance of the business. But before I turn it over to Bill, as I like to do, I want to just highlight a couple of the key accomplishments by the team in the quarter. I think, first of all, our construction and energy team received a quality award from a key customer for six consecutive months with no product defects in the gas business. It's a great accomplishment for the team. Shows they're focused on executing for customers while simultaneously delivering high levels of growth and strong operating performance. We also had a chance to travel to our Vega Baja plant in Puerto Rico, part of Darrin's Commercial and Industrial group, to check in and see how everyone's doing. You recall that they were severely impacted last fall with Hurricane Maria.
There was certainly a tremendous amount of destruction to the island. But I can tell you from firsthand, talking to the people, it takes a lot to crush their spirits. I heard stories about people showing up at the plant the day after the hurricane wanting to go to work. Of course, the plant had no power, so we had to make alternate arrangements. They're all back working despite the personal loss, and we'll do all we can to help ease their burden. But the level of commitment that that team shows is just a great testimony to the culture in Hubbell and the commitment that our team throughout the organization has, and I compliment them. It was great to see it firsthand.
Obviously, in the other part of the electrical business, lighting, Kevin and his team have been doing a great job getting their cost in line, getting price discipline, and continuing to build on the improvements that they had last year. You see that in their margin performance for sure. Lastly, on the power side, the big focus for the power team is obviously the integration of Aclara, which we said is doing quite well. The revenue is above plan. Their meter business is up over 25% in the second quarter. They're diversifying their portfolio with some international orders coming from South America, the Caribbean, Europe, Asia Pacific. Orders in the second quarter were above target, and they continue to work on innovation. They announced in the second quarter ZoneScan, which is a water AMI product, and they took an order for Synergize RF, which is an electric AMI.
All good news. The integration's on track, and we're very pleased with the performance, and Bill will get a little more into that in detail in just a minute. I think all in all, a good start to the year, and let me turn it over to Bill to get into more details.
Thank you, Dave, and thank you, everybody, for taking time to join us. Hubbell's performance second quarter was very strong. The engine of that performance was the top line. You see sales of $1.17 billion, representing organic growth of 5%. That 5% really is coming from very constructive end market backdrop, broad and consistent end markets contributing to that organic growth. In addition, we've successfully invested in inorganic growth. As you see acquisitions adding another 18% to our top-line story. For OP, we executed very well. We saw 20 basis points of margin expansion to 14.4%, really using productivity and volume to help overcome the price cost headwinds that we are facing. The outcome of that margin expansion and sales growth is earnings growth to $1.97, 38% increase from prior year.
Very strong earnings performance there, and all of that driving solid cash flow performance as well, and we'll talk more about that and the importance of cash flow to executing our business strategy. Let's start with the engine of this success, which is the sales growth on Page 5. The 23% obviously largely driven by the acquisitions, but 5% from organic, and you'll see a lot of green arrows there, very consistent and strong end market support. We're enjoying very supportive conditions here, obviously. On the non-res side, we first separate between public and private. The private non-res market much more important to us, and they're still 10% below the prior peak and in the seventh year of expansion. When you look at the leading indicators in terms of starts and momentum, it appears that there's continued growth out there for non-res.
On electrical transmission and distribution, both sides are strong. For transmission, really small to mid-size projects are powering the growth there. On the distribution side, also strong. We're seeing spending on system hardening caused by some of Mother Nature's influence, California fires and storms in the Southeast, but also general good weather has been supportive of construction as well for distribution there. On industrial, in particular, we're seeing a very nice rebound on the heavy side, very welcome volume coming back to us there as industrial is growing. Oil and gas. Oil's been more mid-single digits, but gas has been in the double digits. The last few years, we've invested about $240 million to build a business with exposure to the gas distribution side there, very similar to our power business. Resi been strong as well.
A very supportive end market picture underlying our sales performance. As we look at operating profit, we'll break down on Page 6 between the gross and the SG&A. You'll see gross profit growing 20% from $296 million to $355 million. The margin was a little bit below last year as they're absorbing Aclara coming on at lower margin and price material headwinds of about one point. As you can see on the right where we have selling and administrative expense, you see the benefit of being efficient and having larger revenue base as we saved about 100 basis points in terms of SG&A expense as a percentage of sales. As that translates into operating profit on Page 7, you'll see $34 million of new operating income to $168 million. You see 20 basis points of margin expansion. That dollar is representing a 25% increase.
Again, you see both the volume of organic and the inorganic coming through to help drive that. As that kind of flows through to earnings You see 38% increase in earnings per share from $1.43 to $1.97. Very healthy increase in earnings. While we had lower tax rates, which were very helpful, we did have higher interest expense offsetting some of that because of the acquisition. It's really an operating story that's driving that earnings improvement. We had the sales growth and margin expansion driving earnings. We'll kind of break that down now amongst the two segments. I'll start on page 8 with the electrical segment. Very strong quarter for each of the 3 businesses that comprise our electrical segment. We saw 5% organic growth, and we saw 200 basis points of margin expansion to 13.3% with all 3 groups contributing to that margin expansion.
Within the sales growth, that's all organic at 5%. Highest growers were gas in the double digits and industrial in the high single digits. Good consistent growth across the board. For our lighting business, they had modest volume growth with about one point of price drag, creating a very flat volume story. Their margins improved impressively, as their cost management, and benefits of all the restructuring are really starting to pay off. Important strategy there of the lighting team to not chase the unproductive volume and try to be as disciplined on the price front as we can. For the electrical segment here, you see very strong incrementals, and a very positive story there for the segment. On page 9, we'll switch to power. You see a 64% increase in sales to $478 million for the quarter.
Also a strong 5% organic underlying that. Transmission and distribution, as we've discussed, both supportive. The acquisitions providing really the lion's share of the growth there. For the operating income, you see a 26% increase in income to $76 million. The margins are down as a result of Aclara coming on, and having lower margins. You still see the price cost headwind less than two points. An improved position since the first quarter. As Dave had referenced in his comments, they did have higher material costs, but they had an increase in pricing and starting to set up for a better second half as they manage that price cost headwind there in power. Free cash flow was a very important part of our performance for the second quarter.
You can see in the top half of the chart, a very strong improvement to prior year, $127 million of free cash flow. It was very important for us to have a good second quarter. I think you'll recall from the first quarter, we had essentially a break-even quarter, and on top of that, we had about $25 million of one-timers coming out of tax reform and Aclara transaction costs. Essentially, this second quarter gets us in line year to date at $105 million to support the year that we've promised you of having free cash flow ahead of net income. Within that $105, we had about $47 of CapEx for the year to date. We're spending about half of what we expect for the year.
That $152 of operating cash flow is supportive of the amount of operating cash flow we expect for the full year. We also wanted to show you EBITDA on page 11. Not something we've talked about consistently over the years. Given a lot of the changes that we've had in the portfolio, we thought it would be quite a useful measure to show what's growing in the business. You see both the quarter on the top and the year to date on the bottom. Very healthy double-digit growth rates of EBITDA. For the year to date, the burden between interest and taxes are largely offset. This measure is quite a good indicator of both net income growth as well as the non-cash amortization that's burdening that to really show what the cash earnings trajectory of the business is in a simple measure.
That's why we're showing that to you. I was going to ask Maria to comment on page 12 on the capital structure.
Thanks, Bill. On the capital structure, we ended the second quarter with $195 million of cash, approximately 90% of which was held outside of the U.S. As for the decrease in cash from year-end, we repatriated about $210 million of international cash and used it to pay down debt, both commercial paper and some term loans. While CP looks like it's been flat at $63 million for the six-month period, it had actually increased pretty significantly in Q1 as a result of borrowings to fund the Aclara acquisition in February. A lot of hard work from the team went into reducing that balance from the Q1 levels. You can also see we started paying down the amortization of our $500 million pre-payable term loan, which we issued in connection with the Aclara acquisition.
We also have four tranches of long-term senior notes, all with rates in the low to mid threes. We have a $750 million credit facility that backs our commercial paper program and is fully available. Reducing our leverage is one of our capital allocation priorities. Our net debt to total capital is just under 50%, and we remain on track to reduce our debt-to-EBITDA ratio by about half a turn to approximately 2.7 times by year-end 2018. With that, I'll hand it back to Bill.
I think I'd also comment more largely on capital allocation, as Maria mentioned. We've been growing the CapEx, as I mentioned, at $47 million halfway through. We announced our dividend on Friday. We bought back about $10 million worth of shares in the quarter and anticipate doing more through the rest of the year. Maria mentioned some debt paydown, and I think we got the balance sheet here poised to be able to invest in small acquisitions as well. All of that cash flow and the state of this balance sheet, I think, are very supportive of us continuing our capital allocation strategy to support the profitable growth of the business. Page 13. Dave highlighted the end market outlook and the fact that essentially each of our markets was performing closer to the top end of the range rather than the midpoint.
What we've done here is essentially raised the bottom point. Starting at noon, transmission and distribution was previously at 2%-4%. We're raising that to 3%-4% here. Resi was 2%-4%. We're actually seeing positive performance there. We raised that to 5%-6%. Non-res was formerly at 1%-3%, raising that to 2%-3%. Industrial was 2%-4%, raising that 3%-4%. Oil and gas was 5%-7%, raising to 6%-7%. The effect of raising effectively all those bottom ends takes the end market growth expected for the year from 2%-4% up to 3%-4%. Again, not necessarily acceleration that we're seeing in the second half, but a recognition of strength that we experienced in the first half that we see really carrying through.
On page 14, we wanted to revisit the price material cost that Dave had spent time at EPG in May discussing with you all. We thought it was a pretty clear picture of the fact that in the second quarter, the material cost headwind did increase on us. You can really see the traction that our price increases had in the quarter, and maybe more importantly, the traction that we're anticipating those having to go into the second half to really create the price cost tailwind that we need to reverse the headwind we've had in the first half. You see the mention that we've excluded tariffs from this picture, and it's worth discussing tariffs with you all.
When you start with Section 232, the direct impact on us was immaterial, and it was the indirect impact that really we think is one of the drivers of the red material cost inflation that you see on page 14, and that, as you can see here, we're offsetting essentially with price. What we see with 301, list one essentially impacts our power systems business and our commercial and industrial business. The SKUs are switches and connectors and other areas. List two is largely affecting GFCI, which is in our commercial and industrial business. We're reacting to those primarily with two levers. One is price, and the second is supply chain realignment.
In supply chain, you'll see everything from us that we're already in process of implementing, from switching from China to other Asia, from China to Mexico, and from China to U.S., and we are remediating both of the impacts of those lists. Right now, I would say we're anticipating having order of magnitude of about a $0.05 impact in each of the third and fourth quarters, and we're striving very hard to reduce those impacts. We are absorbing that impact in the guidance that Dave shared with you. List three is still something we're spending some time analyzing. It affects our lighting business notably, and the impact of using price as a remediation lever there will be particularly interesting as one of the factors influencing lighting has been lower cost Chinese imports.
It'll be interesting to see if that's a more constructive environment in order to raise price to offset that. In tariffs, in short, from list one and two, hurting us by about a $0.05 a quarter. We're absorbing that in our guide, and our objective for list three, is to offset those impacts as well. With that, I was going to switch back to Dave to talk about our outlook for the balance of the year.
All right, great. Thanks, Bill. Let me just highlight how we see the remainder of the year on page 15. Obviously with the end market growth uptick that Bill went through, as well as the performance of Aclara to date, we're taking up the low end of our sales growth. It was 15%-20%. We think it's more of 18%-20%. Still some new product development driving some modest market outperformance in there. The big drivers are clearly acquisitions, specifically Aclara, and the better end markets. As I mentioned earlier, we're raising and tightening the EPS range. Diluted EPS of $6.25-$6.55, and adjusted EPS of $7.05-$7.35. We're raising the bottom on the adjusted by $0.10 as we go through the year. A lot attributing to that, the improved operational performance for sure.
As Bill mentioned, we've got the impact of 232 and 301, list one and two, and list three is early. I think everyone, I can assure you that the whole team is focused on the actions necessary to mitigate that. I can tell you from my recent industry experience in Washington, I think there's still a view that not all of this will ultimately survive. We can't operate on that uncertainty. We're operating on the basis that it's here, it's going to continue, and we need to operate accordingly to do what's necessary to mitigate it. That's how we're working on it. Obviously, free cash flow greater than net income. I think the second quarter certainly demonstrates that we can do that with the disciplined attention and getting past some of the noise from the first quarter that we were dealing with.
If you turn to page 16, this is just an update on the waterfall we showed you last quarter. Key changes here, certainly the core performance is better, as we already talked about, and a little bit lower amortization from Aclara, $0.05 lower amortization. Let me summarize what you've heard and how we see things. Certainly the first half of 2018's done. The year so far is shaping up solidly, trending in line with our expectations. We're certainly well positioned to continue to benefit from the strong end markets, continuing to benefit from a lot of the difficult restructuring actions that are paying off. Certainly, we continue to do more, and we will, but just part of our normal day-to-day operations. We're seeing positive tailwinds from tax reform, both lower rates and balance sheet flexibility that's allowed for some of the repatriation that Maria mentioned earlier.
Of course our key focus is on the successful integration of the largest acquisition in our history. That's all the good news. We continue to have to battle the commodity inflation as a headwind. I think the organization is clearly on top of that. We've seen the traction and we've seen that start to turn. We keep getting more thrown at us in the ways of tariffs and others, I think the process is in place to keep that at bay. We raised our guidance based on our strong second quarter performance. Certainly it was a little stronger than we expected. It may have been a lot stronger than the market expected. We just needed to demonstrate that we could do what we were planning to do and get caught up on price, which I think we are well on track to do.
Our priorities for the rest of this year, we're going to continue to capitalize on that market growth. We're going to continue to get price from our differentiated products and our service. We're going to spend appropriately on the actions supporting long-term growth, whether that's on acquisitions, R&D, share repurchase. We're going to do that because we're going to continue to focus on generating cash, and integrate Aclara. We laid out our vision for 2020 at our investor day in March and provided you some additional details on our objectives a couple of months ago at EPG. I got to tell you, we're certainly on track to deliver on those commitments. We believe that those commitments will represent a differentiated earnings growth for our investors. I'm confident we're doing the right thing to make this vision a reality.
With that, let me open it up to questions. Amanda?
As a reminder, if you'd like to ask an audio question, please press star then the number 1 on your telephone keypad. That is star 1. Your first question comes from Christopher Glynn with Oppenheimer.
Thanks. Good morning. Congratulations on the electrical margins there.
Thanks, Chris
Hey, on electrical, I think long-term seasonality 2Q to 3Q is usually some seasonal lift. It wasn't exactly the case the last couple of years. Any reason that notion of seasonality doesn't hold as the base case for this year with the better macro fundamentals?
No, I think, Chris, we had anticipated typical seasonality.
Okay. Anything on electrical book-to-bill in the second quarter?
In the second quarter? I think all our businesses were book-to-bill over one. I think we saw strength in the second quarter.
Okay. On lighting, couple of quick ones. Any early indications of the price increases by all the majors that were announced starting to stick? Secondly, I think the trade groups are working on making headway versus the offshores and the seemingly accepted assumption that the dynamic that's taken place with that demographic is tantamount to product dumping.
Yeah. Let's start with your pricing question. I think it's maybe a little too early to really see things, but we had about a point of drag, and that's a little bit better than what we've been doing, but was kind of in line with expectations. I think it's still a little early to tell. I'm not sure, Dave, if we have much comment on the concept of dumping or not.
No. I think that Bill made reference to, particularly on list three, big impact on list three is around lighting products. I think that's one of the areas that, in absolute terms, there could be a cost associated with it, there could be a competitive advantage because that would effectively, if in fact there is evidence of, as you referred to, dumping, then you would make the pricing more cost competitive, make the U.S. manufacturers at least on even par. That remains to be seen how that plays out, Chris. A lot more to go on that's where I think a lot of that is playing.
Okay. If I could sneak in one more on Aclara. Obviously, pretty exceptional growth this year. How do we think about that as you pivot to 2019? The run rates, does that have to take kind of a pause year, or is the backlog and the pipeline suggesting otherwise?
Well, certainly, the backlog and the pipeline is still solid. We've talked about a billion-dollar backlog, more importantly, a $3 billion qualified pipeline, and that pipeline continues to be significant, and we continue to get our fair share of that pipeline. I think it bodes well for continued strong performance, the magnitude of year-over-year improvement. It is only July.
Okay. Thank you.
Okay.
Your next question comes from Rich Kwas with Wells Fargo Securities.
Hi, good morning, everyone.
Morning, Rich.
On lighting, just back on that. In terms of the stuff that would be affected, my understanding is it would be the lower cost stuff, the stuff where the Chinese imports have really made some hay, residential stock and flow like commercial. What percentage of the production you do is sourced from China or Asia versus what's done in Mexico or on the continent? Is there a way to think about that?
Yeah. Our supply chain for lighting, broadly speaking, for residential, has a large percentage coming in from China. In terms of the commercial and industrial business, some of the componentry does, but really the manufacturing's done in Mexico and U.S. We want to keep analyzing list three, Rich, and try to really understand its impact before giving out too many of those pieces, I think.
It would be fair to think that you would have capacity that you could utilize here to bring it back in-house if you were bringing it back to the continent, right? On some of the residential stuff.
Yeah. If you're saying is supply chain realignment an available lever? We would say that's something we're evaluating, yes.
Okay. All right. On power, the margin on the legacy business was a little bit better in first quarter year-over-year, how should we think about the second half of the year? You indicated it's going to be better, in the context of being price cost positive exiting for the entire company, it sounds like. How should we think about legacy power?
Yeah. Power, with that red and blue chart where we showed price cost, it shows the second half as having the price larger than the material costs. With power, that's really going to take until the fourth quarter for that traction to catch up, Rich. I still think there's going to be, in the third quarter, a little bit of price cost headwind still within power, even though with electrical, you'll see that flipping.
Negative in third quarter for power.
Yeah
When should we think of it neutral by the fourth quarter?
Yes.
All right, last one, Bill, on tax rate. What's the updated guide have for tax rate for the year? Is it still 24%-26%? Now you've had six months to look at tax reform.
Yeah.
How do we think about opportunities?
Yeah, I think 24 probably is feeling more in the range now that we've got the first half in the barn here. There'll still be puts and takes, obviously, but I think 24 is a good expectation for us.
Longer term, any thoughts on opportunity to bring that down further?
Yeah, we sort of were happy with the first 600 basis point move, but yes, we'll keep looking for opportunities.
All right, real quick, just lighting? Was lighting revenue flat year-over-year? You said something about volume and price, I just want it clear.
Yeah. The volume was modestly positive. The price was a point negative, you had basically flat sales for us for lighting. We did much better on the profit side of that. That equation, I think it's better for us to be not maxing out on volume and instead being focused on where we can get the most constructive price.
Right. Okay. Thanks. I'm passing on.
Your next question comes from Steve Tusa with J.P. Morgan.
Hey, guys. Good morning.
Morning, Steve.
Just on the free cash flow. Anything abnormal seasonally here, as we think about it through the rest of the year, or in what happened here in the first half?
I'd say the first half, the abnormality really was some outflows related to tax reform in the first quarter and paying some Aclara transaction costs. I'd say we were burdened by maybe $25 million of sort of one-timers. For us, the seasonality of cash flow, when you cut it by quarter, we have a very strong back end orientation, a lot of that around collecting receivables at the end of the year, and managing inventories down after the sales peak in Q3. This is shaping up, Steve. It feels similarly, we're talking target-wise of getting to $500 million of operating cash flow and hundred-ish of CapEx to get those targets we feel are seasonally supported by where we are. It was important for us to have this strong second quarter to get there.
I guess I'm just kind of doing the math, and I guess everybody does seasonal math differently using a certain amount of time. Just simple back of the envelope gets me higher than 365 you talked about at EPG. Am I doing the right math on that?
Yeah.
Yeah, I think so.
I'm getting somewhere in the kind of $380-$395-ish range.
Yeah.
Is that about right for this year?
Yeah, I think that's right, Steve. I think that's right.
All right, that's well on the way to 500 plus, I guess. Plus is actually means something here. That's good to hear. Then just lastly on the T&D side, what specifically is kind of happening there? Is that just some of this pent-up pipeline coming through, and anything in particular driving that?
Yeah, I think on the transmission side, it's these small and medium-sized projects, which is really good business for us. I think our brand is very well set up to support our customers doing that. I think on the D side, it's much more, there has been some construction supported by some decent weather, but a lot of it is kind of O&M and system hardening. It seems to be the word of the day to kind of strengthen those last mile networks.
Great. Okay.
For us to be growing kind of 5% organic is very healthy for T&D, as you know. That's good news.
Yeah, absolutely. Well, great cash flow and looking forward to seeing how it all ends up. Thanks.
Okay. Thanks, Steve.
Your next question comes from Jeffrey Sprague with Vertical Research Partners.
Thank you. Good morning.
Morning.
Morning. Hey, just picking up on T&D. Obviously, you're saying you're benefiting from good weather, getting some work done. How do you think about the hurricane comps and the like? Assuming kind of a normal storm season, it seems that you feel like you can kind of just power right through those comps and grow nicely, just based on what you're seeing in the pipeline. Is that correct?
Yeah, I assume there was no pun intended there, but I do think that you're saying it the same way we're looking at it, that we'll power through. You're right, there is some headwind from some big volume comps last year. Certainly the way we're analyzing backlog and looking at some of the pent-up demand, we power through those comps.
I think also on power, you were suggesting there was just more customer resistance to price than you were seeing in your electrical businesses. I guess they're still resisting, but you're finding a way to overcome that, or has something changed in the market? Perhaps more of this investment's going into CapEx instead of OpEx, for example, and anything like that that would kind of make it easier to get price as we're looking forward?
Well, I think one of the things, Jeff, from certainly the first quarter is the material cost headwind being more broad-based across and affecting all the participants in the industry. It just became commonplace. I think early on, there were some participants who thought they might be able to hold price and gain share, and I think that lasted about two weeks until the reality of that material cost headwind hit. All of a sudden, it was okay. We're all in this, and I think that's true across all of industry. I think the utility side, early on, had a little bit more resistance. As you recall, I've talked about some people wanting to benefit from tax reform and all kinds of other interesting ideas. I think the demand is out there. The reality of these cost headwinds is out there.
I'm cautious to say this because Gerben would kill me, but it has been a little easier, right, to get it than we certainly felt 90 days ago.
Right. Perhaps you could elaborate a little bit on what impressive margin execution and lighting meant in terms of year-over-year improvement or sequential improvements or kind of how you're run rating in that business.
Yeah. Just last year around this time, we were kind of dealing with some cost inefficiencies as they were spending a lot, that certainly caught up with our operating performance, service, et cetera, that's all been remediated, corrected itself, we're sort of operating at what feels to us very sustainable and predictable cost rates that have benefited now from those restructuring actions. The margin expansion was attractive in lighting and very welcome to come back.
Just one last one from me. Just the actual underlying margin performance at Aclara itself. Just trying to kind of pick apart all these price costs and mix issues and everything else.
Yeah.
How is Aclara underlying margin execution actually playing here?
Yeah. We were talking on Steve's question about seasonality. Aclara, we anticipate, will have similar seasonality to Hubbell, namely very strong third quarter and better second half in terms of margin performance. We're anticipating, for the year, that they're doing sort of towards the mid-teens of EBITDA for the year. For the second quarter, they were helping us with double digits of OP and of the $0.54 that we added at earnings per share, Jeff, Aclara, net of the interest expense that we took on contributed $0.11 of that $0.54. Their margins are lower than Powers, but a good contributor to our growth and our earnings.
Great. Thank you.
Your next question comes from Nigel Coe with Wolfe Research.
Thanks. Good morning.
Nigel, good to hear from you.
Yeah, thanks. Good to be back. Just wanted to kind of latch on to Jeff's question on Aclara there. If I understood the answer correctly, $0.11 of the EPS growth came from Aclara. I think you got $0.50 in the full year guidance. Just maybe just talk about how you feel about that $0.50, which is unchanged from last quarter, about that $0.50 for the full year. How much more confident do you feel in that number?
Yeah, I think now we've got really five operating months under our belt, Nigel, and that feels better. I think one of the drivers for them, we've talked about how good their volumes are. That's been skewed, as David mentioned, to meters. If I were being real picky, I'd rather have that volume be skewed to comms from a margin perspective. Given that underlying strength, we feel good about what they'll give us for the year.
Okay. What is the overall organic growth for Aclara in the quarter?
Well, we didn't own it last year, so it's not contributing anything but in that 18% of incremental acquisition growth. Compared to it prior to our ownership, they had double-digit growth for their quarter.
Right. Okay, great. Then switching to industrial, obviously you took up the low end of your full year guide for industrial by a point. I think you said high single digit growth in industrial for the second quarter. It implies a little bit of a give back or quite a lot of deceleration in the back half of the year. Is that conservatism? I mean, I understand it's half a comp-
Yeah, the-
Is there anything that would lead to that?
Sorry. The high single digit comment was to heavy industrial.
Okay
The light industrial, which is a higher portion of total industrial, is smaller. I do think that that heavy industrial piece is margin-rich for us, so we kind of watch it even though it's a smaller percentage. For us, this is a nice solid recovery out of 2015, 2016, first quarter 2017 of how industrial was performing. We're very pleased to see it doing what it's doing.
Okay. Then just a quick one on light industrial. Any pockets of weakness in that light industrial bucket? I ask the question that we have heard some weakness in food and beverage, for example. Any pockets of weakness you've caught out there?
We've been not seeing that. For us, I think we have a pretty broad cross-section there, I'd say it's been growing just fine from our perspective.
Okay. Thanks, Buck.
Your final question comes from Joseph Osha with JMP Securities.
Hey, I made it. Good morning.
Hey, good morning, Joe.
Just to drill down on Aclara again a little bit. If I look at what's implied by the year-on-year inorganic number, it would appear to imply that this business is a good deal bigger than that $500 million run rate that you talked about last December. Can you maybe help me a little bit to understand what sort of run rate I should be thinking about? Secondly, I am hearing from a couple of the other metering companies that certain components, especially passive components, are really, really hard to get, and I'm wondering how that might be impacting that business, especially on the electrical side. Thanks.
Yeah. Starting on the top line, doing $500 last year with double-digit growth should get you $550 or better this year. That's straightforward. I think on the component side, we are seeing the same thing, and it's lengthening out lead times for sure. It's made vendor relations important. It's made forecasting important, and managing inventory in anticipation of demand has all become more important skills. We have seen those components impacting lead time on the supply side for sure.
Okay. The $550 then, would that imply that the business weakened seasonally in the second half of the year, or is my math off on Aclara?
Yeah, we're anticipating a strong third quarter. We'll have to check the math with you offline.
Okay. All right.
It's.
Okay.
Yep.
We can follow up.
All right. Thanks very much.
Okay. Thanks, Joe.
Now I'd like to turn it back over to Ms. Maria Lee for any final closing comments.
All right. Thanks, everyone, for joining us. The IR team will be available for questions.
Thank you. That does conclude today's call. You may now disconnect.