ABB Ltd. (ABB) reported first-quarter 2011 earnings per share of 29 cents, below the Zacks Consensus Estimate of 31 cents but above prior-year earnings of 20 cents. ABB witnessed double-digit growth rate in order level, revenue and earnings.
Increasing demand for industrial efficient products, investments being made in gird interconnections and upgrades and a comparatively better cost position boosted the company’s performance in the quarter.
Total Revenue
Total revenue in the quarter increased by $8.4 billion, an increase of 18% year over year in terms of local currency, and highest growth rate in last two years. Revenue in the quarter was driven by implementation of large order backlog and increased sales of short cycle products. Order level in the quarter increased by 25% in terms of local currency to $10.4 billion, with a backlog of $29.3 million.
Growth for the quarter was also supported by Baldor acquisition.
Segment Results
Power Productsrevenue was $2.3 billion, down 3% in terms of local currency due to lesser number of power transmission orders implemented in the quarter. Order rate increased by 15%, led by increased order receipt in all the segments. The company witnessed strong demand for transformers in China.
Power Systemsrevenue was $1.8 billion, up 27% in terms of local currency led by strong execution of order backlog. Order level increased by 5%, with double digit increase in order for high-voltage direct current (HVDC) technologies in Europe and Asia. Order level also increased in America driven by growth in the US and Canada but declined in the Middle East and Africa due to a fall in demand for substations.
Discrete Automation& Motion revenue was $1.9 billion, up 52% in terms of local currency with increased revenue in all businesses. Order level increased by 63%, led by increased industrial production as well as rising demand for process quality and energy efficient products. Baldor acquisition added $400 million in orders leading to highest order growth for the segment in Americas.
Low Voltage Productsrevenue was $1.2 billion, up 16% in terms of local currency, led by increased sales in product business, partially offset by decreased sales in low-voltage systems business. Strength in industrial demand and blooming construction sector in Asia and Europe increased demand for low voltage products by 25% in local currency.
Process Automation revenue increased by6% in local currency to $1.9 billion, led by increased sales of turbocharging and measurement products and an improvement in lifecycle service revenue at double digit rate. Order level was up by 21% led by increased demand in all businesses and regions with Middle East and Africa witnessing strongest growth.
Income and Expenses
The company incurred $107 million of charges related to the Baldor acquisition, which included earnings before interest and taxes (EBIT) of $1 billion, up 43%.
Balance Sheet and Cash Flow
At the end of the quarter, ABB had net cash balance of $2.2 billion, down from $6.4 billion at the end of the first quarter of 2010. Cash balance declined primarily due to the acquisition of Baldor Electric completed at the end of January 2011, and required a total cash outflow of about $4.2 billion. Cash from operating activities declined to $166 million compared with $427 million in the first quarter of 2010, due to increased working capital requirement.
Outlook
The company sees good prospect in early cycle businesses with rising industrial demand. Moreover, it expects its infrastructure-related businesses in both power and automation to recover later in 2011. Increasing demand for energy efficiency, industrial productivity and more reliable power infrastructure in both the mature and emerging economies will support the company’s future growth prospects.
Business in the emerging markets are seen as prime benefactors for the company though rising demand levels in mature market also supports ABB’s future growth prospects. Price increases initiated by the company to meet the rising raw material costs will lead to margin improvement. ABB focuses on attaining profitable growth opportunities by maintaining a competitive cost position, strong balance sheet, strong presence in global market and a leading technology.
ABB Ltd.’s power and automation technologies offer a solution for sustainable development, thus helping to shield the world's resources. The company has a number of technologies for the solar power industry and also a growing installed base. ABB Ltd. has witnessed improving signs in late-cycle power, with some recent large contracts.
However, ABB's results are likely to be adversely affected by macroeconomic weakness as more than 80% of the company's orders are derived from outside the US. A major competitor of ABB Ltd. is Siemens AG (SI).
ABB Ltd. is a Zurich (Switzerland) based power and automation technology company. The company operates in approximately 100 countries, structuring its global organization into five regions: Europe, Americas, Asia, the Middle East and Africa.
We maintain a Zacks #3 Rank (short-term Hold recommendation) on ABB Ltd.
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