ABB Declines on Slowdown in Chinese Construction, Transport
ABB Ltd. (ABBN) shares fell as much as 4.2 percent after the world’s largest supplier of power grids said it sees no immediate recovery in Chinese demand in construction and transportation.
Cost cuts and price increases were “not enough to cover the incredible slowdown seen in China,” Chief Executive Officer Joe Hogan said on a media conference call.
The slowdown in the country hit revenue from China’s transportation, construction industries. ABB saw weaker demand in that market for low-voltage products like circuit- and switch-breakers, and some medium-voltage products.
“It’s difficult to see when we can see a rebound in construction and transportation” Chief Financial Officer Michel Demare said.
“The outlook statement looks more guarded with expectation of flat or low single-digit revenue growth in early-cycle businesses compared to the previous expectation of low single- digit growth,” said Panagiotis Spiliopoulos, an analyst at Bank Vontobel.
‘Unfavorable Product Mix’
ABB said it needs China and southern Europe to recover in order to improve the current “unfavorable product mix” that has hampered margins. More than half of ABB’s profitability decline from the first quarter of 2011 was attributable to the challenging environment in China, the company said.
China made up 14 percent of revenue at the end of the fourth quarter of 2011, said Thomas Schmidt, an ABB spokesman.
Part of ABB’s business in Europe and China is generated by lower-margin products such as connectors and low-voltage gear that are shipped in large volumes. These products generally contribute about 20 percent to 25 percent of revenue, Spiliopoulos said.
Shares of ABB traded 3.1 percent lower at 17.81 francs as of 2:22 p.m. in Zurich.
First-quarter profit matched analysts’ estimates after the company cut costs to counter weaker pricing. Earnings before interest and taxes rose to $1.05 billion from $1.01 billion a year earlier. Orders increased 2 percent in local currencies.
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