May 31 (Bloomberg) -- ABB Ltd. will probably fail to reach the upper end of revenue targets for its low-voltage subsidiary on lackluster demand from China and Italy, said Tarak Mehta, the head of the unit.
The business, which makes circuit breakers and devices to control industrial machinery, may struggle to reach 10 percent organic revenue growth this year, Mehta said in Baden, Switzerland, yesterday. That compares with a target of 8 percent to 11 percent between 2011 and 2015, a goal that ABB’s smallest unit by sales aims to hit in the longer-term, he said.
“I can’t forecast right now that we see signs of growth,” Mehta said. ABB has made “short-term adjustments” to its low-voltage workforce as orders have fallen, he said.
The unit is a demand indicator for ABB in industries such as construction, as equipment can ship in less than a week, compared with several years for long-cycle business such as heavy power distribution gear. The business led a drop in earnings at ABB in the first quarter, with unit profit falling 25 percent from a year earlier amid what Chief Executive Officer Joe Hogan called an “unfavorable product mix.”
ABB fell as much as 2.7 percent in Zurich trading, the biggest intraday loss since May 18. The shares traded 1.6 percent lower at 15.42 Swiss francs as of 10:16 a.m.
“I have modelled organic revenue growth of 1 percent for the full-year for low-voltage; I’m very cautious,” said Christoph Ladner, a Kepler Capital Markets analyst in Zurich.
Thomas & Betts Boost
China and Italy typically make up 30 percent of the low-voltage unit’s revenue, Joe Hogan said last month. The subsidiary employees 30,000 and generated $4.9 billion in revenue last year, about 13 percent of the company’s total.
“We have had more flexibility with our temporary workforce, so thankfully we have not had to take a lot of permanent employee reductions,” Mehta said.
Revenue from Thomas & Betts Corp, the U.S.-maker of electrical components that ABB purchased for $3.9 billion this year, will boost the size of the low-voltage unit while adding new products and access to the U.S. market. Thomas & Betts had revenue of $2.4 billion in 2011.
“The U.S. economy is giving us a strong tailwind, it is finally balancing our geographic exposure,” Mehta said.
Thomas & Betts will be fully integrated into ABB by 2015 or 2016 and will add to earnings by the end of 2012, Mehta said. Mehta said ABB is not considering selling any part of Thomas & Betts and that the low-voltage unit is “off the radar screen for some time” for new acquisitions.
“Low-voltage will show growth in 2012, but only after the acquisition of Thomas & Betts. That should contribute about $1.4 billion,” Ladner said.
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