Hubbell's Data-Center Tailwind Meets a $3B Bet — and a Drawdown
Strong Q2 with double-digit growth and raised guidance, but the stock sits 16% off its high as the company spends big on NSI and tariffs complicate the margin story.
HUBB · Earnings Call · 2026-07-28
A Double-Digit Quarter, but the Market Wants More
Hubbell's second-quarter numbers were, by any standard, strong: net sales up 15% (10% organic), adjusted operating profit up 13%, and adjusted EPS up 12%. Management raised full-year guidance across sales, operating margin, and EPS. The problem? The stock is down 12% over the past 90 days and sits 16% below its April peak, suggesting investors had already priced in much of this strength — and are now focused on the risks embedded in the outlook: tariffs, inflation, and the integration of a $3 billion acquisition. As NSI acquisition lands in the portfolio, the market is weighing whether the growth can be sustained without eroding margins.
Gerben Bakker set the tone in his opening remarks:
As megatrends continue to accelerate, most notably in data center markets and load-growth-related investment in utility T and D markets, we are seeing continued strength in our order book, which gives us increased visibility into our second half outlook.
That visibility is the central story of the quarter.
The Order Book Says It All
Hubbell is largely a book-and-bill business, but the first half book-to-bill of 1.2x in Utility Solutions is a clear step-change. CFO Joe Capozzoli noted that orders are now coming in for 2027: “we are seeing orders starting to be booked into 2027, that is particularly on the transmission and substation side of the business.” — Gerben W. Bakker, Chairman, President and Chief Executive Officer · 2026-07-28 The order book is supported by robust quoting activity — project quotes have roughly doubled in the last two years — and by the accelerating need for higher-voltage transmission. Management's confidence is such that they raised the full-year organic growth outlook from 6-9% to 9-11%.
Electrical Solutions was the standout, with 18% organic growth and data center sales up 65% in the quarter. “Data center sales were up approximately 65% in the quarter as capacity additions, new product introductions and content gains drove outgrowth in a strong underlying market.” — Joseph Anthony Capozzoli, Chief Financial Officer · 2026-07-28 This is a data center markets story that goes beyond the short-cycle connectors and cable assemblies; it includes the modular power skid business (PCX) and the new 800V infrastructure products. The company is investing aggressively in capacity — roughly $175-190 million of CapEx this year, up from $155 million last year — to keep up with demand.
What makes this quarter different from prior calls is the breadth of strength. Utility Solutions grew 10% (6% organic), with distribution returning to double-digit growth after years of destocking and grid automation finally turning positive. The volume growth is broad-based, and the investment cycle in T&D shows no sign of peaking. As Bakker put it, "we are in the early stages of a multiyear investment cycle" — a theme that has been building for several quarters but now has the order book to back it. The company's high-voltage transmission opportunity ($1.5 billion over the next decade) is also beginning to materialize, with the first 765kV projects shipping in 2027.
Paying for Growth: NSI and Tariffs
The growth, however, comes with costs. The NSI acquisition, closed in early June, contributed $35 million of sales in a partial month, but the $3 billion price tag (financed with term loan, bonds, and commercial paper) pushed leverage to 2.9x net debt/EBITDA. Management expects $0.20 EPS accretion in 2026 and $0.80 in 2027, with 2-3% sales synergies and 3-5% cost synergies over three years. But the integration adds complexity, and the company plans to delever over the next 24-30 months, which will constrain other capital deployment.
Tariffs are the other wildcard. The company is now expecting about 3-4 points of price for the year, with an additional July increase adding roughly half a point in the back half. The IEPA refunds are expected to provide a net $20 million benefit in the third quarter, but as Capozzoli noted: “the refund we are anticipating is in the guide is all in the third quarter” — Joseph Anthony Capozzoli, Chief Financial Officer · 2026-07-28 — meaning any residual benefit is limited. The underlying tariff costs have also crept up, and management is managing the price/cost equation to neutral or better.
The margin story is nuanced. Adjusted operating margin of 23.9% was down modestly year-over-year, but the company still expects 40-70 basis points of expansion for the full year, with the back half benefiting from volume growth and the tariff refund. However, the second quarter reflected 60 basis points of restructuring investment in Electrical Solutions, and the segment is expected to return to margin expansion only in the second half.
Verdict: A Quality Franchise at a High Price
Hubbell's fundamentals remain intact — Total Revenue has grown double-digit for the fourth consecutive quarter, reaching $1.7 billion in Q2 — and the raised guidance provides a clear path. But the stock's drawdown suggests investors are wary of the execution risk: integrating a large acquisition, absorbing tariff uncertainty, and managing inflation. The good news is that the company's pricing power and order book provide a buffer. The risks are real, but the underlying adjusted operating margin trajectory and the multiyear T&D investment cycle make this a name worth holding through the noise.
As the company sets its sights on its March 2027 investor day, the market will be looking for evidence that the data-center and grid infrastructure growth is not just a cyclical spike but a sustainable trend. If Hubbell can deliver on its 2026 guidance and secure the 2027 order book, the current discount to its peak may prove temporary.