ABB Ltd., the world’s largest maker of power transformers, reported better-than-estimated earnings helped by rising orders in the U.S., the Middle East and Africa. The stock surged the most in more than 18 months.
Fourth-quarter net income reached $604 million, beating the average estimate by analysts for $570 million in a survey by Bloomberg. Sales rose 4 percent to $11 billion and ABB will pay a 2012 dividend of 0.68 francs per share compared with 0.65 francs a year earlier, the Zurich-based company said today.
“People will take the results well. Look at the comparison of their short-cycle business compared to other places,” Martin Prozesky, an analyst at Sanford Bernstein in London, said by phone. “Early-cycle low-voltage and the automation businesss definitely had strong order rates relative to what competitors delivered. Much better than Siemens.”
ABB Chief Executive Officer Joe Hogan is betting on an upswing in U.S. orders after out-spending rivals Siemens AG and Schneider Electric SA in recent years with the acquisitions of American firms Baldor Electric Co. and Thomas & Betts Corp., worth more than $8 billion combined. The U.S.-born executive is also trying to bring the service culture of General Electric to ABB as he targets driving service revenues from 16 percent of total sales in 2011 to between 20 and 25 percent by 2015.
ABB rose as much as as 5.3 percent in Zurich trading to 20.75 francs and was up 4.1 percent as of 9:32 a.m., valuing the company at 47.6 billiion francs. ABB had gained 6.1 percent in 2012, while Siemens rose 11 percent and General Electric increased 17 percent.
Still, the company will focus on cutting costs this year as governments in mature markets hold back decisions on grids and infrastructure investments.
“In the short term, there are still a lot of questions around the pace of growth in Europe and the U.S. and the timing of the rebound in China,” said Hogan, who joined the firm from General Electric Co. in 2008. “We’ll continue to be conservative on costs while making sure we are in position to outperform as the market environment improves.”
ABB is also in the midst of revamping the power systems unit by dropping out of some risky contracts to manage solar power and water treatment plants which contained few of the Swiss company’s products. The revamp led to charges of $350 million in the fourth quarter including restructuring-related costs, in line with ABB’s prediction.
“We have to make sure that we balance that cost and growth piece very carefully,” Hogan said in a video posted online, adding that ABB will cap capital expenditures “pretty much at inflation rate” after they grew about 70 percent in the last three years. ABB cut costs by $1.1 billion in 2012 to exceed a targeted savings plan.
Siemens and General Electric also posted quarterly results last month month that beat estimates, partly as a result of a rise in health-care orders with growth coming from emerging-markets such as China.
ABB said today that fourth-quarter orders increased 41 percent to $3.5 billion in the Americas region and 14 percent to $1 billion in the Middle East and Africa. In Europe, orders gained 1 percent to $3.5 billion while they dropped 25 percent to $2.5 billion in Asia.