ABB Ltd. (ABB) reported third-quarter 2011 earnings per share of 34 cents, below the Zacks Consensus Estimate of 42 cents and in line with the prior-year earnings.
The company benefited in the quarter from its successful cost reduction efforts to mitigate price pressures as well as contributions from Baldor acquisition, which aided both ABB’s revenue and earnings growth.
Total Revenue
Total revenue in the quarter increased 11% year over year in terms of local currency to $9.3 billion. Order level in the quarter increased by 12% in terms of local currency to $9.8 billion, with a backlog of $28.5 million. Order level in the quarter was aided by increased investment by the customers in electrical motors and robots.
Segment Results
Power Products revenue was $2.7 billion, up 3% in terms of local currency. Order rate increased by 6%, led by flourishing industrial and power distribution sectors. However, demand for later-cycle transmission products continues to be low.
Power Systems revenue was $1.8 billion, up 2% in terms of local currency led by strong execution of order backlog. Orders in Power System were up 9% with rapid upgrade of power grids by customers as well as addition of renewable energy sources.
Discrete Automation & Motion revenue was $2.3 billion, up 49% in terms of local currency. Order level increased by 51%, driven by worldwide rise in demand for energy-efficient automation solutions and contributions from Baldor Electric, acquired in the first quarter of 2011.
Low Voltage Products revenue was $1.4 billion, up 7% in terms of local currency, led by implementation of the stronger order backlog in low voltage systems, partially offset by the slower pace of product order growth. Order growth for the segment slowed during the quarter at 2%, due to a difficult year-over-year comparison, low demand in most early-cycle industries, and ongoing cutbacks in renewable investments compared to the same quarter a year ago.
Process Automation revenue decreased by 1% in local currency to $2.0 billion, led by low sales in the marine business. Increased metals and pulp and paper revenue added to segment revenue. Order level increased by 5%, driven by increased capital investment in oil and gas and related marine sectors.
Income and Expenses
The company achieved savings of approximately $270 million in the quarter. This was part of ABB’s $1 billion cost savings program for 2011. A total cost of about $30 million was incurred for the program during the quarter.
EBITDA in the quarter amounted to $1.6 billion, an increase of 24% year over year.
Balance Sheet and Cash Flow
At the end of the quarter, ABB had net cash balance of $1 billion, down from $1.2 billion at the end of the second quarter of 2011. Cash from operating activities declined in comparison to the same quarter of 2010 due to an increased net working capital, mainly higher receivables and inventories.
Outlook
Though business in the emerging markets are seen as prime benefactors for the company, rising demand levels in mature market also supports ABB’s future growth prospects. The company sees good prospect in energy-efficient power and automation technologies with the rising oil prices.
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.
However, certain macroeconomic concerns have increased, especially public debt issues and low capital spending in Europe. More than 80% of the company's orders are derived from outside the US as such ABB is quite vulnerable to such macroeconomic weakness.
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. A major competitor of ABB Ltd. is Siemens AG (SI).
We maintain a Zacks #4 Rank (short-term Sell recommendation) on ABB Ltd.
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