ABB Profit Beats Estimates as China, Germany Orders GrowPatrick Winters
ABB Ltd. Chief Executive Officer Ulrich Spiesshofer, one month into the job, said he will extend the strategy of his predecessor that helped earnings beat estimates and add extra focus on driving sales across units.
The integration of $10 billion of acquisitions and penetrating deeper into existing markets are current priorities for the world’s largest maker of power transformers, Spiesshofer said. ABB shares rose as much as 4.7 percent, the most in eight months, after today’s profit surprise.
Spiesshofer is taking on the top job at the Zurich-based company as it prospers from takeovers in the U.S. and the addition of electric motors, low-voltage gear products and solar inverters to its portfolio. China and Germany bolstered ABB’s orders in the third quarter. By contrast, a CEO switch at rival Siemens AG comes at a more challenging time, marked by abandoned targets and lost market share.
“I don’t think it’s terribly radical, but it’s sensible and a logical extension of what his predecessor did,” said Andrew Bell, an analyst at Canaccord Genuity Ltd. “The ability to collaborate, to cross-sell, to find solutions, to improve penetration across your product range, and to make customers more aware of you, will improve pricing power.”
ABB traded 3.8 percent higher at 22.79 francs as of 12:30 p.m. in Zurich.
The $8 billion purchases of Thomas & Betts and Baldor Electric, orchestrated by then-CEO Joe Hogan, brought greater exposure to the U.S., where the economy is faring better than in Europe. Third-quarter net income rose 10 percent to $835 million, beating an average $789.4 million estimate of 21 analysts surveyed by Bloomberg.
ABB’s current structure will remain intact, and those cost-cutting and efficiency-boosting measures that Hogan, aided by Spiesshofer, introduced during the 2008 financial crisis will remain in place.
“Market penetration will be a key element that we really drive -- and that might be a key difference between Joe and myself,” he said.
Among the appointments that have coincided with Spiesshofer’s arrival is Greg Scheu, heading acquisition integration and North American operations.
Spiesshofer said there’s more room for “disciplined M&A,” flagging plans to grow organically and through deals in subsea power and control technologies for the oil and gas industry, car charging infrastructure, and in solar photovoltaic technologies.
Purchases have helped buoy results as some markets remained stagnant in 2013. Third-quarter sales rose 8 percent to $10.5 billion, also beating analyst estimates. There are now signs of a recovery, with ABB’s base orders -- smaller contracts of less than $15 million that are the backbone of sales, growing in the quarter for the first time this year.
“Large orders are still a little bit slower in the pick-up,” Spiesshofer said in a video on ABB’s website. “We have some delay in decision-making in Europe, some delay in decision-making in the mining industry.”
Spiesshofer has enjoyed a steadier transition into the top job than Joe Kaeser who took over Munich-based competitor Siemens AG in July after the ousting of Peter Loescher. Siemens plans to eliminate 15,000 posts, or 4 percent of its 370,000 workers worldwide, to catch up in profitability with rivals General Electric Co. and ABB.
ABB has made “good progress” against its 2011 to 2015 goals and will continue to work towards the targets, Spiesshofer said today. The Swiss company targets compound annual sales growth of 7 to 10 percent between 2011 and 2015, and operational earnings before interest, taxes, depreciation and amortization margin of 13 to 19 percent over the same period.
Before today, shares of ABB had risen 17 percent this year, compared with a 16 percent gain for Germany’s Siemens AG.