Hubbell's ROCE and Capital Employed: A Compounding Machine

Hubbell's (NYSE:HUBB) return on capital employed (ROCE) has trended positively, increasing from an unknown level to 22% over the last five years. This suggests that the company is effectively reinvesting earnings to generate higher returns on capital. With a growing amount of capital employed and increasing returns, Hubbell has proven to be a compounding machine. However, investors should be aware of one warning sign associated with the company.

Hubbell (NYSE:HUBB), a leading provider of electrical and utility infrastructure products, reported its Q2 2025 earnings, showcasing a robust financial performance with an 11% year-over-year increase in adjusted earnings per share to $4.93, exceeding analyst expectations of $4.43 (non-GAAP) [1]. While revenue (GAAP) came in slightly below the consensus estimate at $1.48 billion, it grew 2% compared to the same period in 2024 [1]. The company's operating margin expanded to 22.7%, reflecting improved price realization and productivity actions that outpaced inflation and tariff-related headwinds [1].

One of the key highlights of Hubbell's performance is the steady growth in its return on capital employed (ROCE), which has trended positively over the last five years. According to the company's financial reports, ROCE has increased from an unknown level to 22% over this period. This suggests that Hubbell is effectively reinvesting its earnings to generate higher returns on capital [1]. The growing amount of capital employed, coupled with increasing returns, positions Hubbell as a compounding machine, capable of delivering consistent growth over time.

However, investors should be aware of one potential warning sign associated with Hubbell's operations. The company's Grid Automation segment, which includes meters and advanced metering infrastructure (AMI) devices, has faced weak project activity, leading to a 13% drop in sales in this segment during Q2 2025 [1]. This softness in Grid Automation could limit growth in Hubbell's Utility Solutions segment if not addressed. Additionally, the company is monitoring the impact of reciprocal tariffs and raw material inflation, which could pressure costs and require further price increases [1].

Looking ahead, Hubbell has raised its full-year 2025 earnings guidance following the strong margin and earnings performance in Q2 2025. Adjusted earnings per share are now expected to land in a range of $17.65 to $18.15, while reported (GAAP) EPS is projected between $16.25 and $16.75 [1]. The company anticipates 4–6% organic and total sales growth and continued adjusted margin expansion.

In conclusion, Hubbell's strong financial performance and positive ROCE growth indicate a company well-positioned to deliver consistent value to its shareholders. However, investors should remain vigilant about the potential risks associated with the Grid Automation segment and ongoing cost pressures.

References:
[1] https://www.nasdaq.com/articles/hubbell-posts-11-percent-eps-jump-q2
[2] https://seekingalpha.com/article/4806888-hubbell-earnings-showing-positive-momentum