ABB Quarterly Net Rises 30% on Automation Equipment
ABB Ltd., the largest maker of power-transmission gear, reported a 30 percent jump in quarterly profit on higher demand for equipment to automate factories. The company forecast more than $1 billion in cost savings this year.
Fourth-quarter net income climbed to $700 million from $540 million a year earlier, Zurich-based ABB said today. Orders rose 18 percent to $8.8 billion based on local currencies. Earnings before interest and taxes climbed 23 percent to $978 million, trailing the average estimate of $1.09 billion by 22 analysts compiled by Bloomberg.
Chief Executive Officer Joe Hogan, who completed a program he started in 2008 to save $3 billion by lowering sales and administrative expenses, is fighting price erosion in ABB’s energy transmission and distribution businesses, and expansion by Asian competitors such as Hyundai Heavy Industries Co. and Mitsubishi Electric Corp. ABB said today it plans to achieve additional cost savings of more than $1 billion in 2011.
“Judging from the rather weak margin in the fourth quarter, the cautious comments in its outlook statement and the new cost-cutting effort for this year, ABB may face greater price pressure going forward,” Jana Arndt, a credit analyst at UniCredit SpA in Munich, said in an interview.
ABB plans to pay a 2010 dividend of 60 centimes a share, an 18 percent increase from a year earlier.
The stock fell 77 centimes, or 3.3 percent, to 22.41 Swiss francs in Zurich. Before today, it had gained 20 percent in the past year, versus a 38 percent jump by Legrand SA. Schneider Electric SA added 54 percent, while Siemens AG rose 55 percent.
Schneider Electric, the world’s biggest maker of low-and medium-voltage equipment, today reported 2010 profit that doubled and predicted further gains in sales and margins.
Siemens, Europe’s largest engineering company, on Jan. 25 reported a 19 percent increase in new orders, and a record profit excluding acquisitions or disposals of 1.79 billion euros ($2.4 billion) for the three months through December.
“We achieved profitability well within our target range by leveraging our lower cost base,” Hogan said in today’s statement. “That allowed us to benefit from the ongoing recovery in automation and to successfully counter demand and price weakness in our longer-cycle businesses.”
ABB’s profit compared with the $701 million average estimate of analysts compiled by Bloomberg. A $120 million charge related to a power-cable project weighed on net income. The company said its operational EBIT margin reached 12.3 percent, within its target range of 11 percent to 16 percent.
Sales gained 4.8 percent to $9.2 billion, beating analysts’ average estimate for $9 billion. During the quarter, ABB won orders including a $580 million contract from Svenska Kraftnät of Sweden and LITGRID turtas AB of Lithuania to supply a new power transmission link between the Nordic and Baltic regions. ABB also received orders for power transmission stations for Qatar and a contract to link a wind farm off the coast of Belgium to the mainland grid.
The Swiss company said today it expects continued demand growth in all regions for power and automation equipment as customers build and upgrade power infrastructure and seek to improve industrial efficiency, while emerging markets will drive growth.
In mature markets, ABB predicts increased spending by utility companies on power transmission products following two years of lower investments in many regions. Increased capacity in the power equipment industry will put pressure on prices for several quarters to come, ABB said.
Last month, ABB completed the acquisition of Baldor Electric Co. for about $3.1 billion to expand in the North American market for industrial motors and drives. Last year, ABB purchased software maker Ventyx Inc. for more than $1 billion, spent $965 million to increase a stake in its Indian subsidiary and tried to acquire Chloride Group Ltd. but was outbid by Emerson Electric Co.
ABB today named Frank Duggan to its group executive committee as head of global markets, a position held by Chief Financial Officer Michel Demaré since 2008. Duggan joined ABB in 1985 and has been responsible for India, the Middle East and Africa since 2008.
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