Thomas & Betts Corporation ( TNB)

Q3 2011 Earnings Call

October 20, 2011 11:00 a.m. ET

Executives

Patricia Bergeron – VP, IR & Corporate Relations

Dominic J. Pileggi – Chairman & CEO

William E. Weaver – Senior Vice President & Chief Financial Officer

Analysts

Jeffrey Sprague – Vertical Research Partners

Mike Wood – Macquarie Capital

Elana Wood – BofA/Merrill Lynch

James Bank – Citigroup

Peter Lisnic (Josh) – Robert W. Baird

Richard Kwas – Wells Fargo Securities

Christopher Glynn – Oppenheimer & Co

Karl Ackerman – KeyBanc Capital Markets

Jeff Beach – Stifel Nicolaus

Brent Rakers – Morgan Keegan

Presentation

Operator

Greetings, and welcome to the Thomas & Betts Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Patricia Bergeron, Vice President of Investor and Corporate Relations for Thomas & Betts. Thank you, you may begin.

Patricia Bergeron

Thank you, Diego. Good morning, and thank you for joining the Thomas & Betts Corporation third quarter 2011 earnings conference call. With me today are Dominic Pileggi, Thomas & Betts’ Chairman and Chief Executive Officer; and Bill Weaver, Senior Vice President and Chief Financial Officer. Dominic will begin our formal remarks with a review of business highlights. Then Bill will address the third quarter financial results. Following a conclusion of our formal remarks, we will take questions from the investment community.

In an effort to discuss the company’s operations and performance in a manner which provides a like-for-like comparison, our remarks include a number of non-GAAP items and measurements. These non-GAAP measures are reconciled to GAAP financial information in the attachments included with our earnings release. They should not be considered a substitute for, or superior to financial measures defined by GAAP. We strongly encourage investors to consider all available information in their evaluation of Thomas & Betts.

I would also like to remind you that our comments today include forward-looking statements, which make assumptions about our operations, business, economic and political environment. These forward-looking statements are subject to risks and uncertainties, as outlined in our current Form 10-K.

I will now turn the call over to Dominic.

Dominic Pileggi

Good morning, and thank you for joining us today. Thomas & Betts turned in a very strong performance in the third quarter. We delivered solid organic sales growth in all of our key markets; industrial, construction, and utility. Solid growth in all of our key geographies, record segment margins in our electrical segment, and earnings from operations above the high end of our guidance.

We also completed a small opportunistic and highly complementary acquisition in our HVAC segment, renegotiated our revolving credit facility with competitive rates and conditions, maintained price cost parity in the quarter, completed substantially all of the consolidation activities we initiated earlier this year in our electrical segment, and continued to refine and execute our vertical sales and marketing strategy.

Consolidated sales grew nearly 17% year-over-year. Higher volumes in the electrical and HVAC segments and increased pricing across all three segments accounted for over half of the sales growth.

Earnings per share increased 32% year-over-year to $1.03 above the high end of our guidance for the quarter. We consider this excellent performance and a testament to our ability to remain focused, execute against our strategies, and perform well financially, even in the face of sluggish economic growth, and increasing pessimism regarding the sustainability of the global recovery.

Turning now to how our businesses performed in the quarter. In our Electrical segment, sales increased 14% year-over-year to $500 million. If you recall, I spoke at length on our second quarter conference call about our belief in our strategy of delivering essential non-discretionary products and services to our targeted vertical end markets and geographies. This has proven to be advantageous in a slow growth macroeconomic environment, and was a key contributor to our performance in the quarter.

As I noted earlier, our Electrical segment delivered a record high margin at 21% of sales. This is 40 basis points better than the previous peak achieved in the third quarter of 2008, when segment sales were approximately 16% higher.

Macro market conditions in the quarter were largely unchanged from what we’ve seen all year. Growth in industrial and utility markets continues to be driven by routine maintenance and repair, where CapEx spending, rather than by capital spending, and construction activity continues to be driven more by retrofit, refurbishment, and expansion, then new vertical construction.

This makes sense when you look at the macro data. The ISM Purchasing Managers Index continues to show positive growth and capacity utilization and industrial production rates are up year-over-year. As capacity utilization and production rates increases, so does the need to maintain and repair equipment and facilities. Total construction put in place is up approximately 1% year-over-year, but remains well below historical levels.

New non-residential construction is roughly flat with last year. In housing markets, there is still no sign of a pick-up in single family dwellings, and starts were down nearly 6% year-over-year in September.

With softness in new construction, it makes sense that spending is more weighted towards refurbishing existing facilities and homes. The macro data supports what we are hearing from our customers. I spend a significant amount of time in the field, meeting with distributors and key customers. And contrary to what the endless stream of negative headline and media commentary might lead you to believe, activity levels are healthy, and overall end-market demand has held up relatively well.

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