ABB Profit Beats Estimates as Cost Cutting Delivers Benefit

  • Swiss grid maker blames 8% drop in orders on contract timings
  • Market impacted by uncertainties such as U.K. exit from E.U.

ABB Ltd. beat estimates for quarterly profit as the world’s largest maker of power grids pushed ahead with cost cutting in a bid to counter a drop in large orders.

Operational earnings before interest, taxes and amortization rose 5 percent to $1.1 billion, with savings and improved productivity helping to boost margins, the Oerlikon, Switzerland-based company said in a statement on Thursday. ABB cut a fifth of the workforce at its Zurich headquarters and moved finance and human resources to India and Poland.

“The restructuring program is gaining traction,” said Michael Hagmann, analyst at HSBC, who rates the company a buy. It was “another quarter of margin improvement.”

The shares rose 1.5 percent to 20.37 swiss francs at 11:51 a.m. in Zurich. The stock has gained 18 percent this year, giving it a market value of 45 billion francs ($45.6 billion).

Chief Executive Officer Ulrich Spiesshofer has made management changes, cut costs and started a strategic review of the power grids division in a bid to counter the economic slowdown in China as well as in the oil and mining industries. Activist investor Cevian Capital AB is among the biggest shareholders in the Swiss maker of robots and mining equipment.

Brexit Weakness

Profit beat an average estimate of $1.02 billion of analysts surveyed by Bloomberg. Quarterly sales dropped 5 percent to $8.7 billion while orders fell 8 percent to $8.3 billion, reflecting the timing of some large contracts, the company said. China continues to invest in large projects and European demand was generally strong except in the U.K., where uncertainties around the country’s vote to leave the European Union knocked orders by 34 percent.

ABB is aiming for savings of $400 million this year from a program to reduce office-worker costs, and has started two shared service centers for corporate functions such as finance in Bangalore and Krakow. The engineering company is also on track to reduce working capital to free up at least $2 billion in cash by the end of next year.

“The transformation is progressing and we are really running on all cylinders,” Spiesshofer said on a conference call with journalists.

Base orders, defined as contracts worth less than $15 million, were “steady” in the quarter while large orders dropped by 39 percent, ABB said. Demand was high in the European construction industry, while strong orders in China and India weren’t enough to offset declines in Saudi Arabia and South Korea, the company said.

“ABB is operationally executing very well while fighting an uphill battle on several fronts,”  Panagoitis Spiliopoulos, an analyst at Vontobel Holding AG, wrote in a note. The company is making “considerable progress” in most divisions as a result of strict cost discipline.

A strategic review of ABB’s portfolio is progressing according to plan and the company said it will report on this at its capital markets day in October.

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