Hubbell (HUBB) Telefonkonferenz zu Q3 2026: Rechenzentrumswachstum treibt Prognoseanhebung

Wichtige Erkenntnisse

• Der Nettoumsatz im dritten Quartal stieg im Jahresvergleich um 25 % auf 1,873 Milliarden US-Dollar, einschließlich eines organischen Wachstums von 11 % sowie eines Beitrags von Übernahmen in Höhe von 13 %.
• Das bereinigte Betriebsergebnis erhöhte sich um 33 % auf 477 Millionen US-Dollar. Die bereinigte Betriebsmarge erweiterte sich um 160 Basispunkte auf 25,5 %, unterstützt durch Volumenwachstum in margenstärkeren Bereichen und ertragssteigernde Übernahmen.
• Der Bereich Electrical Solutions verzeichnete ein organisches Wachstum von 22 %, angeführt von einem organischen Umsatzplus von über 80 % im Rechenzentrumsbereich. Die bereinigte Betriebsmarge des Segments erreichte 24,8 %, was einem Anstieg um 400 Basispunkte entspricht.
• Das bereinigte verwässerte EPS stieg um 14 % auf 5,91 US-Dollar, während der freie Cashflow um 10 % auf 280 Millionen US-Dollar zulegte.
• Hubbell hob seinen Ausblick für das Gesamtjahr 2026 auf ein Umsatzwachstum von 18 % bis 19 % und ein bereinigtes EPS von 20,40 bis 20,60 US-Dollar an. Das organische Wachstum wird nun bei 10 % bis 11 % erwartet.
• Das Management erwartet für 2027 ein organisches Wachstum, das mindestens im Rahmen des langfristigen Ziels im mittleren einstelligen Prozentbereich liegt, unterstützt durch eine überdurchschnittlich hohe Visibilität des Auftragsbestands und Kapazitätserweiterungen.

Wichtige Finanzkennzahlen

Geschäfts- und operative Entwicklung

Electrical Solutions

Electrical Solutions war der Hauptwachstumstreiber. Der organische Umsatz stieg um 22 %, wobei die Erlöse im Rechenzentrumsbereich organisch um mehr als 80 % zulegten, da eine höhere Wertschöpfung pro Projekt, neue Produkte und Kapazitätserweiterungen die Nachfrage stützten.

Das Management geht davon aus, dass Rechenzentren zum Jahresende 2026 etwa 15 % des Umsatzerlöses von Electrical Solutions ausmachen werden. Die leichtindustriellen Märkte blieben stark, während die Bereiche Stromübertragung und -verteilung sowie erneuerbare Energien ebenfalls wuchsen. Die Nachfrage im Gewerbebau war solide, aber die Schwerindustriemärkte blieben vergleichsweise schwach.

NSI trug 29 Prozentpunkte zum Umsatzwachstum des Segments bei und erzielte margensteigernde bereinigte Margen. Laut Management lagen sowohl die Integration als auch die operative Leistung über den ursprünglichen Erwartungen.

Utility Solutions

Utility Solutions verzeichnete ein organisches Wachstum von 5 %. Grid Infrastructure wuchs organisch um 8 %, angeführt von Verteilung und Übertragung, während auch der Umsatz mit Umspannwerken zulegte.

Der Auftragsbestand im Versorgungsbereich stieg seit Jahresbeginn um mehr als 500 Millionen US-Dollar und lag etwa 30 % über dem Niveau von Anfang 2026. Das Management führte diesen Anstieg auf Übertragungs- und Umspannwerksprojekte, Lastwachstum, Netzverstärkung und Investitionen in die Netzresilienz zurück.

Grid Automation verzeichnete ein organisches Minus von 4 %, da ein Engpass bei Zählerkomponenten den Umsatz um etwa 15 Millionen US-Dollar vom dritten in das vierte Quartal verschob. Das Management erklärte, dass die Produktion wieder voll angelaufen sei, und rechnet im vierten Quartal mit einem zweistelligen Wachstum für Grid Automation, sobald der verzögerte Umsatz verbucht wird.

Protection & Controls erzielte ein zweistelliges Wachstum, unterstützt durch Schaltprodukte für Umspannwerke und Lastkopplungsprojekte.

Kapazitätsinvestitionen

Hubbell erweitert Maschinen, Montagelinien und Fabrikflächen in den Produktkategorien Rechenzentren, Stromübertragung und Umspannwerke. Das Management beschrieb diese Projekte als renditestarke Investitionen, die darauf ausgelegt sind, der absehbaren Nachfrage gerecht zu werden.

Das Unternehmen gab an, dass im Jahr 2026 zusätzliche Kapazitäten von etwa 25 Millionen US-Dollar pro Quartal in Betrieb genommen wurden, und erwartet, dass diese Zahl im Jahr 2027 auf rund 50 Millionen US-Dollar pro Quartal steigen wird. Der Kapazitätsausbau wird schrittweise erfolgen, wobei weitere Investitionen für die Nachfrage über 2027 hinaus erwartet werden.

Prognose des Managements

Hubbell hob seinen Ausblick für das Gesamtjahr 2026 an:

Für 2027 erwartet das Management ein organisches Wachstum, das mindestens dem langfristigen Zielrahmen des Unternehmens im mittleren einstelligen Prozentbereich entspricht. Zudem geht es davon aus, dass das Verhältnis von Preis, Kosten und Produktivität auf Dollarbasis neutral bis positiv ausfällt, bei einer Inkrementalmarge von 25 % bis 30 %.

Das Unternehmen zieht Preisanpassungen bei Electrical Solutions auf November 2026 vor und plant Preiserhöhungen bei Utility Solutions um den Jahreswechsel oder Anfang 2027, um der Inflation und dem normalen jährlichen Preisanpassungszyklus Rechnung zu tragen.

Das Management rechnet auch 2027 mit einer weiterhin starken Nachfrage nach Rechenzentren. Ebenso sieht es anhaltende Stärke bei Stromübertragung, -verteilung und Umspannwerken von Versorgungsunternehmen sowie in den Märkten für elektrische T&D (Übertragung & Verteilung) und erneuerbare Energien. Die Erwartungen für Gas, Telekommunikation, Zähler und AMI, Gewerbebau und Schwerindustrie fallen verhaltener aus.

Risiken und Beobachtungspunkte

• Die breit gefächerte Inflation und höhere Rohstoffkosten hielten im Jahr 2026 an. Hubbell geht davon aus, dass Preis- und Produktivitätsmaßnahmen diesen Druck ausgleichen werden, die Umsetzung bleibt jedoch entscheidend.
• Der Engpass bei Zählerkomponenten verringerte vorübergehend den Umsatz von Grid Automation, obwohl das Management davon ausgeht, dass das Problem bis Ende des vierten Quartals behoben sein wird.
• Der Kapazitätsaufbau bei Steuergebäuden für Umspannwerke verlief langsamer als erwartet, was zum gesenkten Ausblick für das organische Jahreswachstum von Utility Solutions beitrug.
• Die Margen von Utility Solutions im vierten Quartal stehen unter Druck durch Inflation, Investitionen in Kapazitäten und Produktentwicklung sowie Kundenanrechnungen in Höhe von etwa 5 Millionen US-Dollar im Zusammenhang mit IEEPA-Zollerstattungen, die sich aus dem dritten Quartal verschoben haben.
• Höhere Zinsaufwendungen im Zusammenhang mit den Übernahmen von NSI und DMC Power sowie eine höhere Steuerquote schwächten das Wachstum des Betriebsergebnisses im dritten Quartal auf EPS-Ebene teilweise ab.
• Kapazitätserweiterungen erfolgen weiterhin schrittweise, was bedeutet, dass kontinuierliche Investitionen erforderlich sein werden, um die mehrjährige Nachfrage in den Bereichen Übertragung, Umspannwerke und Rechenzentren zu bedienen.

Highlights der Analysten-Runde

• Rahmenbedingungen für 2027: Das Management verwies auf eine überdurchschnittlich hohe Visibilität des Auftragsbestands und erwartet ein organisches Wachstum von mindestens im mittleren einstelligen Prozentbereich, ein neutrales bis positives Verhältnis von Preis, Kosten und Produktivität sowie eine Inkrementalmarge von 25 % bis 30 %.
• Senkung des Versorger-Ausblicks: Die Anpassung spiegelte einen vorübergehenden Engpass bei Zählerkomponenten und eine langsamer als geplante Erweiterung der modularen Kapazitäten für Umspannwerk-Steuergebäude wider. Das Management rechnet damit, dass sich beide Bereiche bis 2027 verbessern werden.
• Electrical-Margen: Die Marge von 24,8 % im dritten Quartal profitierte von saisonal starken Volumina, margenstärkeren Rechenzentrumsprodukten und NSI. Das Management sieht das Quartal nicht als Run-Rate-Niveau an, geht jedoch davon aus, dass sich die langfristige Margenausweitung fortsetzen wird.
• Hochspannungsübertragung: Hubbell hat den Zuschlag für ein 765-kV-Projekt erhalten, dessen Auslieferung voraussichtlich um den Jahreswechsel und im Laufe des Jahres 2027 beginnen wird. Laut Management wächst die Projekt-Pipeline, auch wenn Produktprüfungen und -qualifikationen Investitionen erfordern.
• Grid Automation: Nach Bereinigung um die Umsatzverschiebung von 15 Millionen US-Dollar entsprach die Entwicklung laut Management den bisherigen Erwartungen für das zweite Halbjahr. Das mit Aclara verbundene Geschäft wird auf Stromzähler, kommunale Genossenschaften, AMI und die installierte Basis ausgerichtet, mit dem Schwerpunkt auf moderatem Wachstum und besseren Margen.

Vollständiges Transkript der Telefonkonferenz

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Thank you for standing by, and welcome to Hubbell's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Dan Innamorato, Investor Relations. Please go ahead.

Daniel Innamorato

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter of 2026. The press release and slides are posted to the Investors section of our website at Hubbell.com. Joined today by our Chairman, President and CEO, Gerben Bakker; and our CFO, Joe Capozzoli.

Please note our comments this morning they include statements related to the expected future results of our company. The 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 considered incorporated by reference in this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, which are included in the press release and slides. SP999 Now let me turn the call over to Gerben.

Gerben Bakker

Good morning, and thank you for joining us to discuss Hubbell's Third Quarter 2026 results. I will start my comments by summarizing 3 main themes we are seeing across the business in 2026. The first is that demand for Hubbell's critical infrastructure solutions remains strong. We see this clearly in our order book, year-to-date backlog build and in long-term planning discussions with our utility and electrical end customers. Second, we are proactively investing to serve this strong demand. These investments have varying profiles across businesses, product lines and factory footprint. Some areas such as data center balance of system, electrical components and certain transmission and substation product categories are coming online quickly and are driving outperformance in 2026, while some investment in the same high-growth markets will enable us to serve longer-term visible project demand in 2027 and beyond.

What is consistent across the capital investment program as a whole, is a highly attractive return profile accretive to our overall ROIC, which will enable us to grow our leading position in our core end markets over the next several years.

And finally, we are managing effectively through a dynamic supply chain and inflationary environment. While broad-based inflation persists, we continue to aggressively drive price and productivity actions across our portfolio. Our recent track record, our unique positions in our end markets and our visibility on actions taken and in progress give us confidence in our ability to continue to manage the price cost productivity equation to neutral or better through the cycle.

Looking more specifically at the third quarter, Hubbell delivered strong financial performance with double-digit growth in sales, adjusted operating profit, adjusted earnings per share and free cash flow in the quarter as well as on a year-to-date basis.

Third quarter performance was highlighted by 22% organic growth in Electrical Solutions, driven by data center sales increasing more than 80% in the quarter on an organic basis as well as continued progress on our segment unification efforts and vertical market strategy. The NSI acquisition is off to a strong start, with performance and integration efforts trending ahead of our initial expectations.

Utility Solutions results were solid in the quarter with strong core T&D performance offsetting a temporary component availability headwind in our meters business.

We are raising our full year 2026 outlook this morning, primarily driven by stronger growth outlook in the Electrical Solutions. As we look ahead to 2027, we see an attractive growth outlook across our largest, highest margin end markets, and I'll talk further about the preliminary views on next year at the end of this call. But now let me turn the call over to Joe to provide some details on the third quarter.

Joseph Capozzoli

Thank you, German, and good morning, everyone. I am going to start my comments on Slide 4. Hubbell's overall financial performance was strong with double-digit growth across sales, adjusted operating profit, adjusted earnings per share and free cash flow, both in the quarter and on a year-to-date basis.

Net sales of $1.873 billion in the quarter increased by 25% as compared to the prior year. Organic growth of 11% was driven by robust 22% organic growth in Electrical Solutions and solid 5% organic growth in Utility Solutions.

Acquisitions contributed 13% to growth in the quarter, with NSI off to a strong start in the Electrical segment, as Gerben indicated, and DMC Power contributing nicely to our utility segment.

From an operational standpoint, Hubbell generated $477 million of adjusted operating profit in the third quarter, representing 33% growth versus the prior year, and delivered adjusted operating margins of 25.5%, representing 160 basis points of year-over-year expansion. Growth in adjusted operating profit was primarily driven by strong volume and high-margin businesses as well as the impact of acquisitions, which were accretive to adjusted operating margins.

Price cost productivity was approximately neutral on a dollar basis in the third quarter, including the net impact of IEEPA tariff refunds. While broad-based cost inflation has persisted as 2026 has progressed, we have driven strong price and productivity realization over the last several quarters, and we are executing additional actions as we exit the year, which we are confident will position us well for 2027.

Adjusted earnings per diluted share were $5.91 in the third quarter. This represented a 14% increase versus the prior year, driven by adjusted operating profit growth and a modestly lower share count as a result of prior share repurchase activity, partially offset by higher interest expense associated with the NSI and DMC Power acquisitions and a higher year-over-year tax rate.

Free cash flow of $280 million was up 10% relative to the prior year. We continue to anticipate approximately 90% conversion of free cash flow to adjusted net income on a full year basis, which absorbs the impact from increased capital expenditures, acquisition costs and working capital investments to serve strong current and future sales growth.

Our balance sheet remains healthy, and we remain committed to deleveraging over the next 2 years, which will drive incremental adjusted EPS accretion in 2027 and position our strong balance sheet for further accretive M&A investments over the next few years.

Turning to Page 5 to review our performance by segment. Utility Solutions delivered 10% adjusted operating profit growth in the quarter and 9% sales growth, which was comprised of 5% organic growth and 4 points of contribution from the DMC Power acquisition. DMC Power's performance will be reflected in organic growth starting in the fourth quarter of 2026, which we anticipate will be accretive to the segment's organic growth rate.

Grid Infrastructure grew 8% organically in the third quarter, led by strong growth in distribution and transmission markets. Substation sales also grew strongly in the quarter, but modestly below our prior expectation, driven by timing of capacity expansion in our substation control house business.

From a demand perspective, we continue to see broad-based order strength across substation, transmission and distribution markets, leading to further backlog build in the quarter as utility customers plan new projects supporting load growth and continue to invest in hardening and resiliency initiatives.

Grid Automation declined 4% organically in the third quarter, driven by a temporary component availability headwind in our meters business, which we anticipate will be resolved by the end of the fourth quarter and results in a shift of approximately $15 million in revenue from the third quarter into the fourth quarter.

Protection & Controls delivered strong double-digit growth in the quarter, led by continued strength in substation switching products where project interconnecting load growth and recent capacity expansion investments are bolstering our performance.

Operationally, Utility Solutions delivered $267 million of adjusted operating profit in the third quarter, representing 10% growth versus the prior year, with adjusted operating margins up 30 basis points year-over-year.

Adjusted operating profit growth was primarily driven by strong volume growth in high-margin businesses and acquisitions while higher cost inflation and raw material costs were largely offset by price realization, productivity and a net tariff benefit in the quarter.

We also remain focused on executing and investing in capacity expansion initiatives to serve customer demand in high-growth areas, our utility business, which we are confident will drive strong organic growth and deliver attractive returns on shareholder capital, both in the near term and over the next several years.

Moving to Page 6. Electrical Solutions results were very strong in the quarter. On the top line, Electrical Solutions generated net sales of $845 million, which represented growth of 51% versus the prior year and ahead of our prior expectations, driven by outperformance in both our organic business and in NSI.

Starting with NSI, as we highlighted at the time of the acquisition, this business is a strong strategic fit with our portfolio and enables us to double down on our attractive core of critical infrastructure components with complementary products and brands, similar channels to market and clear opportunities for revenue and cost synergies. We are encouraged by the early integration efforts and strong performance with NSI contributing 29 points to the Electrical Solutions segment revenue growth in the third quarter at accretive adjusted operating margins.

From an organic revenue standpoint, 22% organic revenue growth was again highlighted by strength in data center and light industrial markets. Data center sales increased over 80% on an organic basis in the third quarter as content gains, new product introductions and capacity additions drove out growth in a strong underlying market. Most notably, our wiring device and [indiscernible] leave product lines have driven accelerated data center penetration through our vertical market strategy, and recent product innovations and recent capacity investments in these areas are enabling us to capitalize on strong customer demand.

Outside of data center, light industrial markets remain strong, bolstered by U.S. manufacturing activity and electric T&D and renewables markets also grew strongly in the quarter.

Nonresidential markets were solid in the quarter, while heavy industrial markets remained relatively soft.

Across our HES portfolio, our initiatives around cross-selling and channel conversions have driven broad-based commercial success, and we see further opportunities to accelerate this strategy through the integration of NSI.

Operationally, Electrical Solutions delivered $210 million of adjusted operating profit in the third quarter, representing 80% growth versus the prior year, and adjusted operating margins of 24.8% expanded 400 basis points year-over-year. Adjusted operating profit growth was driven by strong volume growth and the NSI acquisition. The higher cost inflation and raw material costs were largely offset by price realization, productivity and a net tariff benefit in the quarter.

Turning to Page 7 to discuss our full year outlook. We are raising our 2026 outlook this morning, driven by stronger sales growth and adjusted operating profit growth. On sales, we are raising our growth outlook to plus 18% to 19%, reflecting an increase in organic growth expectations to 10% to 11%, and stronger NSI contribution now expected to contribute approximately 7.5% to full year sales growth.

Our increased organic growth expectations are driven by a stronger outlook in Electrical Solutions, which we now expect to grow 17% to 18% organically in 2026, while we have slightly lowered our outlook in Utility Solutions to plus 6% to 7% on a full year basis.

Broadly, orders and end market demands have exceeded our expectations across our largest end markets in both segments as 2026 has progressed. The timing of project deployments and internal capacity expansions is driving stronger relative growth within Electrical Solutions segment near term.

Operationally, we anticipate over 20% year-over-year growth in adjusted operating profit on a full year basis at the midpoint of our outlook range, an increase versus our prior expectation, driven largely by stronger volume growth, while the impact of incremental cost inflation, price and productivity actions results in an anticipated adjusted operating margin range of 23.0% to 23.2% for the full year.

Our expectations for below-the-line items remain unchanged, and and we continue to anticipate approximately 90% free cash flow conversion on adjusted net income on a full year basis, which includes the impact of elevated levels of inflation, increased year-over-year capital investment and NSI acquisition costs.

We are raising our full year outlook for adjusted earnings per share to a range of $20.40 to $20.60. We are confident in our ability to deliver on this increased outlook in 2026, which represents year-over-year earnings growth of 12% to 13%.

Now let me turn the call back over to Gerben to give some preliminary views on our attractive 2027 outlook.

Gerben Bakker

Thanks, Joe. We see an attractive end market setup for Hubbell in 2027. Our standing long-term outlook targets mid-single-digit organic growth through the cycle. And as we have indicated throughout this year, everything we see in our end markets, order trends and conversations with customers has given us incremental confidence in the strength and duration of the long-term investment cycle ahead of us.

Given the shorter cycle nature of many of our products, we intend to remain conservative as we update both our annual and long-term growth targets next year, but we will be exiting 2026 with stronger than typical backlog visibility and we are confident in our ability to deliver an attractive year of organic growth in 2027.

In Utility Solutions, we continue to see broad-based strength across distribution, substation and transmission markets. Orders throughout 2026 have continued to exceed our initial expectations, with particular strength in transmission and substation project activity driving backlog build in excess of $500 million year-to-date.

We continue to believe utility T&D markets are in the early stages of an attractive multiyear investment cycle driven by aging infrastructure and bolstered by load growth and data center interconnections.

We have strong specified positions with our end customers, along with leading brands and installed base. And our primary focus as a management team is on executing the capacity expansion required to serve this broad-based demand for our utility customers.

In our smaller end markets, we anticipate more modest growth in the approximately 20% of our portfolio exposed to gas, telecoms and meters and AMI.

In Electrical Solutions, we expect data center markets to remain strong in 2027, and we are confident in our ability to continue to drive outperformance through content gains, capacity initiatives and a vertical market strategy to capture more of our available balance of systems component opportunity.

More broadly, conversations with distributor partners on large project activities have been constructive as electrification, U.S. reshoring and data center build-outs drive tailwinds across the broader industrial economy.

We also anticipate continued strength in electric T&D and renewable markets in 2027, while our expectations for nonresidential and heavy industrial remain more modest.

Finally, I'll highlight that we expect the addition of NSI to further accelerate our strategy to compete collectively in HES with a broad portfolio of leading brands and critical infrastructure solutions driving continued commercial success across our portfolio.

With that, we will turn the call over to Q&A.

Operator

[Operator Instructions] Our first question comes from the line of Steve Tusa of Wells Fargo.

Fragen und Antworten

Charles Stephen Tusa

Can you just provide a little bit of color, I guess, on just the '27 bridge dynamics? I know you guys gave the usual slide talking about the year forward, which looks like it implies something above your long-term algo, first of all, but then anything that you'd want to highlight moving forward on the bridge outside of obviously the tariff stuff?

Joseph Capozzoli

Sure. Steve. So just a little more color on '27 Bridge. So certainly, we'll provide a little more color as we get out into January on 27. But at this point, we've got a little more visibility than we typically would heading into '27 just given the incoming order rate, the backlog build. So we like the visibility into '27 at this point. And we're confident that '27 sees organic of at least our mid-single-digit standing long-term framework. So we feel really good about that.

We're anticipating PCP to be in the neutral to dollar positive next year with incrementals in line with our long-term algo at 25% to 30%. So I'd say that's probably the anchor of the construct, Steve, for '27.

Charles Stephen Tusa

And do you have to go get more price between now and then to make that happen? Or are you pretty comfortable with the way things stand today?

Joseph Capozzoli

So we are pricing -- accelerating price for '27 on the electrical side, pulling that forward into the fourth quarter here in November, and we'll be out at the end of the year, the beginning of the year with utility price. And that's generally for 2 key purposes. One is to address the cost inflation, the higher levels of inflation we've been seeing come through the last couple of months, and also in line with our normal annual price increase cycle.

Operator

Our next question comes from the line of Chad Dillard of Bernstein.

Charles Albert Dillard

I was hoping you could dig more into the guidance cut on utility. Can you talk through like what some of the sub segments drove the more conservative outlook?

Gerben Bakker

Yes. I think 2 main things that are driving slightly below what we're expecting here in the third quarter. And as we look for the balance of this year. The first one is, as we highlighted, a component shortage that we had in our meters business. And this is a very discrete and unforeseen situation, and it has to do with our contract manufacturer of meters who was unable to source a component from a supplier that led to a production slowdown. And this took several weeks to resolve.

The good news is we're back in full production right now and looking to start that recovery -- have that recovery here in the first -- in the fourth quarter. So that was one.

The second one has to do with our substation and particularly the control houses in our substation market. This is our systems controls businesses. And if you look at this market in total, it represents about 20% of the HUS segment with about half being the components and half be in this modular control house. And as a whole, this portfolio grew very attractively, I would say, in line with what transmission and distribution in the high single, low double digits. And if you break that down, the components actually grew even better. This is stuff like connectors and bushings and arresters and switches, and that was in excess of 20% growth. And it's also areas where we've been successfully adding capacity here this year.

We were expecting stronger growth in those control houses going from the first half to the second half. And this is a business that's grown very attractively over the last couple of years. We've been adding capacity and continue to add capacity and that just proved a little harder here in the third quarter to continue to ramp that up. So as a result of continued growth, we're actually flat sequentially from the second quarter to the third quarter.

There's actions in place to continue to grow that, but it's just taken us a little bit longer. So I would expect this part to ramp up as we go into next year, but just at a little bit slow pace. So if you look at those 2 events, it's really what caused us to pull back a little bit on the organic growth this year. But I would say it's a really, really solid setup for next year as we continue to add capacity to our portfolio.

Charles Albert Dillard

Got you. That's super helpful. And maybe just on that capacity ramp point, can you give more detail in terms of just broadly across the whole business, the product lines? Any way to frame just like revenue unlock as you go into '27? And then just timing and talk about where you're investing to unlock that revenue?

Gerben Bakker

Yes. Yes. And if you look at capacity broadly, I would put it in a few bucks, the primary buckets and where we're most adding capacity is what we've been talking about. It's adding the next machine, adding the next assembly line. We're a very skewbroad company and portfolio, so generally, our capacity as take that form. And if you think about [indiscernible] connectors, if you think about the [indiscernible] where we've been able to grow 80%, it's adding more machines under existing roof life, similar to those components in the substation that I talked about. And that's the primary way that we add capacity still today.

The next level of capacity add is extending rooflines. And you can only keep adding so many machines before you run out of roofline. And so adding more roofline adding more square footage around those existing factories is the next level, and we're seeing areas where we're doing that right now.

Our systems control business is one of those that we're doing that as well. So those are primarily the areas how we're adding capacity into our business. What we talked about this year is about $25 million a quarter of that additional capacity coming online, and that's to serve the growth that we're seeing in these markets. And as we look into next year, we anticipate that to about double to about $50 million per quarter as we go into next year.

So I would say our capacity adds have been very successful. The return on these projects, it's the highest returns we get of our investment. So we feel generally really, really good. It's an area where we're focused as a management team to execute, to serve this visible demand that we're seeing in the markets.

Daniel Innamorato

And Chad, I might just add a lot of that capacity going into key markets where we see durable, high growth, high margin and that continues to be in transmission, substation and data center market. So certain areas we've been adding as we go along, we were doing it last year, we're doing it this year, and you see that coming through in the data center growth rate in particular, but also happening in transmission substation as well. So long term, a lot going on there, but really excited about the opportunities.

Operator

Next question comes from the line of Julian Mitchell of JPMorgan.

Julian Mitchell

This is [indiscernible] on for Julian. My first question is on Q4 operating margins. I think they're implied down year-over-year in the guide. So is this both segments? And can you just provide some color to what's the big headwind here?

Joseph Capozzoli

Sure. So the margin impact is primarily you're seeing in utility. And that is a couple of things, and we'll touch on each of these. First, we're seeing and anticipating price cost productivity neutral in the fourth quarter in utility. We are seeing higher levels of inflation come through in the back half here. We are seeing higher levels of price realization, the utility business implemented price in July. And as they work their way through the backlog, that price realization is ramping up as the back half is progressing and that is serving to offset that cost inflation that we're seeing. But it does have price -- an impact on the margin, just trade and price cost dollars there.

Number 2 is we've got some investments as Gerben was just talking about capacity expansion in key areas. Some of that is CapEx dollars, some of it shows up in OpEx dollars, but really important that we're investing for our future in these growth initiatives. Some of that is also beyond CapEx and capacity is also targeted at new product introductions and those new products are serving things like 765 and data center products and things of that nature.

So investments are also included in there. And then we also have some spillover. We talked about our expectations of IEEPA refunds coming through in the third quarter of about $30 million of refunds with about $10 million of partial offsets of customer considerations. And this kind of straddles 3Q.

We did receive the $30 million of IEEPA refunds in the quarter as anticipated. And while we were expecting about $10 million of customer considerations and other, we realized about $5 million of that in 3Q and about $5 million of that is going to spill over into 4Q. So that's also part and parcel to that margin dynamic that you're seeing in Utility in the fourth quarter.

Julian Mitchell

Okay. Just to be clear, Electrical is, you're expecting it to be up year-over-year or it's off and down?

Daniel Innamorato

Yes. So we haven't given by segment margin, but I think Electrical's got tailwinds from obviously, the NSI acquisition and then a lot of the same dynamics that Joe just outlined.

Operator

Our next question comes from the line of Chris Glynn of Oppenheimer.

Christopher Glynn

A little bit on HUS. Curious on the $500 million or more year-to-date backlog build, if that's pretty much all grid infrastructure. Curious if there's any kind of advance or green shoots at the grid automation besides the P&C? And also, if there's any update on the high-voltage transmission sort of next-gen architecture?

Gerben Bakker

Yes, Chris, it's in both areas of about grid infrastructure and grid automation that we're seeing that. And to give maybe some context to that, it's about up 30% from where we were at the beginning of the year, and this is what gives us more confidence as we go into 2027 with just higher visibility to some of that demand.

As far as the 765 , it's an area that, so far, we've been successful. It's actually what we do for a living. It is the products that go into the transmission and substation for 765. We've been continuing to build that up to higher voltages over the years. So 765 is just a natural progression for us. We talked about in the past having won a project that we'll start shipping here as we go to the end of the year and into next year. I'd say the pipeline for that is growing. And we have products that we're working with our customers with specified. These are all specified products.

So we feel really good. It does require investment, and Joe talked a little bit here in the fourth quarter. So before you can get these products up on the line, you're doing a lot of design testing on it. We have some of those capabilities in-house, but some also go to third parties. So there's an investment that's required to get these products specified and ready to go on the line. But I would say that's progressing very well. And we believe over the next years, we'll benefit from those voltages coming online.

Christopher Glynn

Is that something that pulls your share even higher at least nominally directionally?

Gerben Bakker

Yes. I mean I don't know that it would be materially higher. I mean, we're clearly very well positioned for. I think if we look generally in these kind of materials, we're a leading supplier to the market. And I would expect that to be similar here.

Christopher Glynn

Yes, makes sense. And then last one, just comments, latest thoughts on DM fit for the Aclara portion of grid automation?

Gerben Bakker

Yes, I would say, as we've talked in the past, this is a business that we've change the direction and a little bit focused on electric meters, Munich co-ops on the AMI side and the installed base of [indiscernible]. We've taken structural cost out of this business. And from here, our expectations of it is to have more modest growth and improve the margins. And just as a reminder, this is less than 10% of HUS revenue exiting this year and well below that on an OP basis. So we would expect it to stabilize and drive less volatility going forward.

Operator

Our next question comes from the line of Tommy Moll of Stephens.

Thomas Moll

Gergen, I wanted to start with a question on your Electrical Solutions margin approaching 25% for the quarter. You did call out NSI integration is ahead of plan. So that's got to be part of it. But if you pull that away, what other factors were favorable this quarter and as we think towards next year, before we all put '25 in our model for 2027, is there any temporary benefit you had this quarter that we should be mindful may fall away going forward?

Joseph Capozzoli

Good morning, Tommy. So I would say the anchor of that margin performance in the quarter was strong organic volume contribution. And that strong volume has come in, in key product lines, high-margin product lines that are serving data center in addition to the contribution, nice contribution we were anticipating from NSI. So certainly, third quarter is seasonally the strongest revenue and margin performance quarter of the year for us. We're very pleased with the margin performance of Electrical in the quarter. But certainly, this is the going run rate performance. It certainly is the seasonal performance.

But we do continue to see strong margin in Electrical. And Tommy, we've talked about this long-term margin expansion program that Mark Mikes and the Electrical segment team have been driving which is really multifaceted and includes the segment unification strategy, our go-to-market strategy with our with our broad electrical solutions-focused commercial team. We've talked about portfolio management. We've talked about business simplification and management delayering and consolidation, new product intros in key areas. So a lot of variables driving this long-term margin expansion program through electrical, and we really see us in the middle innings and continuing that margin expansion program.

So while you are seeing a real strong third quarter margin, we think about it more broadly that the Electrical Solutions segment will continue to drive margin expansion in 2027 and beyond for all those reasons.

Thomas Moll

And as a follow-up, I wanted to ask about the capacity adds, particularly in your transmission and substation businesses. noted that it should unlock some revenue for you into next year. But assuming that occurs, are you in that case fully meeting the demand? Or should we still think of this as a capacity constrained market?

Gerben Bakker

Yes. I would say this -- I mean, this is not in the form of you add a huge plan, you have an incremental step and then you're done or you're planning for multiyears out. I mean some areas of this market, if you think about some of the other equipment, that's exactly how you have to plan capacity add. For us, still the capacity adds are incremental even when we do roofline extensions. So it's a question of staying ahead of it. So certainly, the capacity that we're adding next year isn't to solve for multiyear. We're going to have to continue to add capacity in '27 for '28 and '28 for '29. And we view that actually as a good thing because it limits you a little bit from getting too far ahead of yourself, but I would see it in that kind of construct of how are we thinking about capacity add multiyear.

Operator

[Operator Instructions] Our next question comes from the line of Alexander Virgo of Evercore ISI.

Alexander Virgo

Great. I wondered if you could just talk a little bit about 2 things for me. The first one, the $15 million in Grid Automation. If I adjust that back, it looks like automation was kind of flat year-on-year instead of building on something as the momentum that you saw in Q2 against an easier comp. So I'm just wondering why we should be feeling better about that as we go forward into next year?

And then secondly, the data center business, you're obviously very strong, and your comments on backlog are helpful and the '27 sort of initial view is helpful. But obviously, a dark green arrow masks a lot of potential growth next year. So I wonder if you could just give us a little bit of a hand on what that end up looking like in HES, again in the interest of putting a sensible sort of number into the model to start with.

Joseph Capozzoli

So yes, I'll start with your first question. That's a $15 million flip in grid automation and normalizing 3Q, 4Q, you're thinking about that the right way. And that $15 million flip would have been very consistent with our expectation for the back half 90 days ago. So just that movement from 3Q to 4Q, normalizes the expectation of grid auto that would have been positive in the third quarter. And we're anticipating now with that $15 million falling into the fourth quarter, that we see double-digit growth in grid auto in the fourth quarter because of it.

The second question on the data center business and the backlog. Certainly, data center has been really strong for our Electrical business. And we're anticipating that we exit the year with about 30% -- sorry, 15% of our Electrical segment revenues tied to data center. And we will provide more color and insight on our 2027 guidance on data center come January. But at this point, we're anticipating that data center continues to grow at very attractive levels in 2027 off of a higher base for us as we exit this year.

Operator

I would now like to turn the conference back to Dan Innamorato for closing remarks. Sir?

Daniel Innamorato

Great. Thanks, everybody, for joining us. I'll be around all day for follow-up calls.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.