ABB Ltd. (ABB) reported second-quarter 2013 earnings per share of 33 cents per share, 10.8% below the Zacks Consensus Estimate of 37 cents. However, quarterly earnings were 17.9% above the prior-year earnings of 28 cents.
Despite the prevailing difficult economic conditions, the company continued to receive orders in key sectors and geographies. The company also benefited from execution of its strong backlog.
Revenues and Orders
Revenues in the quarter surged 6% year over year in terms of local currency to $10.2 billion. Market conditions during the quarter were mixed. ABB reported increase in demand in certain countries and industrial sectors. In addition, selective grid investments by utilities continued. However, major transmission investments are being postponed as the economy remains challenging with growth in electricity consumption lingering at low levels. Further, industrial production continued to be slow across most mature economies and emerging markets reduced their growth expectations. Revenues also missed the Zacks Consensus Estimate of $10.3 billion.
Order level in the quarter declined 8% in terms of local currency to $9.3 billion, with a backlog of $28.3 million. Higher orders in key European markets, such as Germany and Sweden, partly offset some of the continued weakness in Southern Europe. On organic basis, orders declined 11% owing to a 45% decrease in large orders (representing $15 million). Large orders contributed 9% of total orders compared with 15% in the prior-year period.
Segment Results
Power Products revenues were $2.8 billion, up 6% in terms of local currency. Revenue growth reflected strong execution of the order backlog and growth in service volumes. Order rate decreased by 7% to $2.6 billion as the challenging market conditions along with continued selectivity resulted in a lower order intake than the second quarter of the prior year.
Power Systems revenues were $1.96 billion, up 5% in terms of local currency. Revenue growth was again driven by execution of the order backlog. Orders in Power System were down a significant 31% in local currency to $1.31 billion. The division’s strategic repositioning to increase project selectivity and enhance margins was the primary reason for the lower orders. In addition, economic uncertainties across most regions continued to result in project delays.
Discrete Automation & Motion revenues were $2.36 billion, down 1% in terms of local currency. Revenues declined marginally as execution of the order backlog compensated lower sales of early-cycle products such as industrial motors and drives. Order level declined by 2% to $2.39 billion. Decline in orders were due to weaker industrial activity in several large markets as against the prior year, which was partly offset by large orders for power conversion equipment used in rail applications and robotics equipment in the automotive industry.
Low Voltage Products revenues were $1.93 billion, up 20% in terms of local currency. Order increased 19% aided by the contribution from the acquisition of Thomas & Betts.
Process Automation revenues increased 4% in local currency to $2.13 billion. Revenue growth was driven by the execution of the strong order backlog in marine and mining. Further, Lifecycle service revenues increased 5%. Order level was down 21% to $1.79 billion due to fewer large orders in the oil and gas, and mining and marine sectors versus the prior-year period.
Income and Expenses
Income from operations was $1.2 billion, reflecting a 19% increase year over year. The increase was driven by net impact of foreign exchange and commodity timing differences.
Operational EBITDA in the quarter amounted to $1.6 billion, up 6% year over year. Thomas & Betts acquisition contributed about $115 million to the EBITDA.
Balance Sheet and Cash Flow
At the end of the quarter, ABB reported cash from operations of $543 million compared with $595 million in the prior-year quarter. The lower cash level reflects higher net working capital deployment to execute large projects and the timing of customer advances. Both factors are related to Power Systems.
Total debt was $8.1 billion compared with $10.1 billion at the end of 2012. The reduction in total debt was primarily due to the maturity of €700 million ($914 million) bonds in Jun 2013 and a reduction in commercial paper outstanding of approximately $710 million.
Net debt was $3.4 billion at the end of Jun 2013 compared with $1.6 billion at the end of Dec 2012. The increase was primarily due to the payment of the annual dividend to shareholders of approximately $1.7 billion.
Outlook
ABB maintains a positive long-term outlook. Rising investments in grid upgrades and industries spending more on automation solutions to increase energy efficiency and productivity are the benefactors for the company. However, short-term uncertainties prevail with the continuing macroeconomic volatility.
ABB currently has a Zacks Rank #3 (Hold). Other stocks in the similar industry worth a look at the moment are Plug Power Inc. (PLUG), AO Smith Corp. (AOS) and Micheal Baker Corporation (BKR). All three carry a Zacks Rank #2 (Buy).
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