ABB Ltd.’s shares declined the most in more than five weeks after the world’s largest maker of power transformers said lower power-utility investments in Europe weighed on orders.
The stock dropped as much as 4.9 percent to 20.40 francs in Zurich trading after ABB said today that second-quarter orders fell 7 percent from a year earlier to $9.3 billion. The shares were down 4.8 percent as of 1 p.m. local time.
“Major transmission investments are being postponed as the overall economic climate remains challenging and growth in electricity consumption remains at low levels,” ABB said. French rival Alstom SA yesterday also reported lower quarterly orders on weaker spending by utilities and railways in Europe, Africa and the Middle East.
Chief Executive Officer Joe Hogan, who will hand over to Ulrich Spiesshofer in September, has bet on growth in the U.S. with more than $10 billion of acquisitions to add motors, low-voltage gear products and solar inverters, to reduce ABB’s reliance on Europe. The first challenge for Spiesshofer, who heads the discrete automation and motion unit, will be to integrate Hogan’s deals, including electric motor-maker Baldor Electric, Thomas & Betts and solar company Power-One.
“It will be some time” before power grid spending in Europe picks up, ABB Chief Financial Officer Eric Elzvik said on a conference call. “We are continuing to invest in it and we think there is a clear future there,” he said, adding that ABB sees “a lot of pending orders and tenders in high-voltage direct current,” in the region.
Net income rose 16 percent to $763 million in the second quarter, the Zurich-based company said in a statement today. That’s the first profit increase in six quarters. The average estimate of 18 analysts surveyed by Bloomberg was for $779 million. Sales rose 6 percent to $10.2 billion, meeting the analysts’ estimates.
“China was good for us; Germany and parts of Northern Europe were good for us also,” Hogan said in a video posted on the company’s website. “What we see going forward is more of the same. We see most of the markets going sideways over a period of time.”
ABB kept its 2013 forecast and today reiterated comments from April, when Hogan said the company was prepared for a “flat” 2013 compared to 2012.
“Apart from the order intake the result was in line with expectations,” said Richard Frei, an analyst at Zuercher Kantonalbank. ABB’s greater project selectivity, especially in Power Systems, explains the lower order intake, he added.
About 50 to 60 percent of the order slowdown was because of ABB’s project selectivity while the remainder reflected the economic cycle, Hogan said on a conference call today.
Spiesshofer takes over a company worth 50 billion francs eight years after joining ABB and following 14 years as a consultant. ABB’s new CEO should focus on building the Swiss company’s service business and integrating acquisitions, Hogan said on the call.
‘It’s important particularly with the acquisitions we have made that we maintain positive momentum,’’ Hogan said.
Spiesshofer oversaw the Baldor Electric deal and said this month that ABB is “now realizing the synergies” of that purchase. Buoyed by the acquisition, the Zurich-based company increased market share in the $14.6 billion low-voltage motors market by 1 percentage point to 14 percent in 2012, according to a report by sector analysts IHS.
Thomas & Betts
Orders at the low-voltage unit rose 20 percent, buoyed by the purchase of Thomas & Betts Corp. and increasing demand for switchboards and low voltage gear in China, Russia and the U.S., ABB said.
The Power-One transaction, which will close in the second half and give ABB inverters that allow solar power to be fed into grids, is an example of how Hogan has been bringing new technology to the Swiss company. ABB is looking to tap a market forecast to grow by more than 10 percent annually, driven by a need for affordable energy and declining costs of producing solar power.
Before today, ABB shares had gained 14 percent this year, compared to the 5 percent rise of Siemens AG, which is midway through a program aimed at cutting costs by 6 billion euros ($7.9 billion) by the end of 2014. General Electric Co. has gained 17 percent.