ABB Beats Estimates as Power Systems Unit Returns to Profit

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ABB's Exhibition
An attendee looks at a YuMi robot, manufactured by ABB Ltd., at the company's exhibition trade stand at the Hanover industrial fair in Hanover, Germany, on April 13. Photographer: Krisztian Bocsi/Bloomberg

ABB Ltd., the Swiss maker of grid connections and robots, reported profit that beat analyst estimates as the power systems division returned to profit helped by rising orders and cost cuts.

Net income jumped 3.7 percent to $564 million in the first quarter, the company said in a statement. The average estimate of 13 analysts in a Bloomberg survey was $544 million.

Chief Executive Officer Ulrich Spiesshofer has focussed on improving the profitability of the power systems division since taking over at Zurich-based ABB in 2013. The unit, which has grappled with delays to complex renewable energy project, saw an 61 percent increase in orders in the three months through March.

“We are driving cost out and implementing additional restructuring to address market uncertainties in the quarters ahead,” Spiesshofer said in the statement. “Mix effects and market challenges, such as oil and gas, weighed on margins” outside the power systems unit, he said.

Profitability declined at all divisions apart from power systems, with ABB attributing the drop in the discrete automation and power products units to challenges in Russia.

The stock rose 0.6 percent to 21.26 francs as of 10:52 a.m. in Zurich. Before today, ABB shares had declined 0.3 percent this year, even amid a $4 billion share buyback program intended to boost the stock’s performance.

“Given the circumstances of declining oil, which will impact the second half, I think this is a reasonable first quarter,” Daniel Cunliffe, a London-based Liberum Capital analyst who recommends selling ABB shares, said by telephone. “But clearly things are not going to improve from here.”

Currency Woes

The company said the declining oil price and currency effects will continue to affect earnings. Spiesshofer is cutting costs by reducing the number of administrative regions, and in the first quarter introduced a new I.T. setup which is intended to boost savings.

Restructuring costs will now total between $250 million and $300 million this year, $50 million more than previously said. The company will consult labor representatives before announcing the measures, Spiesshofer said in a conference call with journalists without providing further details.

While ABB doesn’t report in Swiss francs, the strengthening of the U.S. dollar has also posed a challenge to the company, with currency shaving 10 percent off revenue in the first quarter. The dollar has gained 10 percent against the euro this year and ABB’s sales fell 10 percent to $8.6 billion in the quarter.

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