ABB Profit Margin Widens as Cost Cuts Help Offset Slowdown

  • Fourth-quarter Ebita margin rises 60 basis points to 11.7%
  • Swiss company sees Chinese growth in 2016 -- at slower pace

ABB Ltd. fourth-quarter profit margin widened as the Swiss maker of industrial robots cut costs to offset a slowdown in China and the oil and gas industry.

A cost-reduction program lifted the operating margin for earnings before interest, taxes and amortization 60 basis points to 11.7 percent in the three months through December, the Oerlikon, Switzerland-based company said in a statement on Wednesday. Net income fell 70 percent to $204 million, although that included $496 million of reorganization charges.

“We are fully on schedule, even ahead in some areas,” Chief Executive Officer Ulrich Spiesshofer said on a call with journalists, referring to cost cuts. “The net income and profitability is impacted by us taking the right action to shape ABB for the future,” he said.

The maker of power transmission cables is overhauling its business by reducing costs and reviewing its portfolio to offset an expected slowdown in the Chinese economy in 2016. Orders fell 12 percent to $8.3 billion in the quarter, while low oil prices and foreign-exchange effects would continue to affect earnings, ABB said.

The shares gained as much as 4 percent and traded 2.7 percent higher at 17.81 Swiss francs as of 10:06 a.m. in Zurich, valuing the company at 41 billion Swiss francs ($40 billion). That reduced the decline for the year to 0.8 percent.

Tough Conditions

“ABB is weathering tough end market conditions with strong cost control,” Goldman Sachs analysts wrote in a note to clients. “While we are positively surprised by these results, we continue to expect deterioration of earnings ahead as base orders slowdown continues to accelerate.”

Orders in China declined in the fourth quarter, contributing to the overall fall. While process industries are expected to slow in the world’s second-largest economy this year, ABB plans to seek out areas of growth by moving into western Chinese cities where there is demand for new power plant connections, Spiesshofer said.

ABB proposed a 2015 dividend increase of 0.02 Swiss francs to 0.74 Swiss francs per share.

“There is still growth out there, you just need to tap into it in the right way,” Spiesshofer said.

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