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ABB Reports In-Line Earnings in Q1, Tops Revenue Estimates

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ABB Ltd. ABB posted operational earnings per share of 31 cents for first-quarter 2018, reflecting an increase of 10.7% year over year. Notably, the reported figure came in line with the Zacks Consensus Estimate. Strong growth in revenues helped maintain earnings, however, this was somewhat offset by increase in total cost of sales.

Quarterly revenues came in at $8,627 million, up 9.8% year over year. The top-line improvement can be attributed to increase in revenues in each of the company’s four segments. Revenues also came ahead of the Zacks Consensus Estimate of $8,272 million.

Segmental Revenues in Details

Electrification Products (up 9% year over year to $2,494 million):  Strong market demand in the United States, Europe, and Asia, Middle East and Africa (AMEA) drove revenues. Orders were up 10% year over year to $2,786 million owing to strong demand across all regions.

Robotics and Motion (up 15.1% to $2,209 million): Sales grew steadily on strong execution of the order backlog. Orders of this segment moved up 18% year over year to $2,579 million on a year-over-year basis backed by reported growth across all segments and regions.

Industrial Automation (up 22.9% to $1,859 million): Orders recorded impressive growth of 26% year over year to $2,117 million. The uptick was owing to service and selective investment in mining and specialty marine vessel solutions.

Power Grids (up 1.4% to $2,385 million): Higher orders contributed to the segment’s revenue growth. Orders increased 7% to $2,480 million, mainly owing to several large orders that include an order for an HVDC link between the UK and France.

ABB Ltd Price, Consensus and EPS Surprise

ABB Ltd Price, Consensus and EPS Surprise | ABB Ltd Quote

Total orders came in at $9,772 million, up 16.3% year over year. The metric also improved 6% on a comparable basis backed by strong base orders across all regions. While base orders grew 15% on a year-over-year basis, large orders amounted to 10% of the company’s total orders. The order backlog at the quarter-end totaled $23.7 billion (up 3% year over year).

On a geographic basis, demand was high in the European countries with moderate overall growth and well-timed large capital investments. Also, orders displayed excellent growth in the Americas driven by increased demand from general industries as well as some improvement in process industries. Evidently, total orders were up 1% in the Americas, supported by rise in demand from general industries and some improvement in process industries. Meanwhile, the strong performance was witnessed in the AMEA region owing to order growth in China, India and the United Arab Emirates.

Book-to-bill ratio at the end of the first quarter was 1.13, up from 1.07 in the comparable quarter a year ago.

Operational earnings before interest, taxes and amortization (EBITA) in the quarter under review rose 12% year over year to $1,060 million.

Next Level Strategy: Stage 3

In third-quarter 2016, ABB had launched the third stage of the revamped version of its “Next Level Strategy” that focuses on three areas namely — profitable growth, relentless execution and business-led collaboration. The third stage calls for restructuring the company’s divisions into four market-leading entrepreneurial businesses, unlocking its full digital potential, accelerating momentum in operational excellence and enhancing the company’s brand.

ABB also restructured its business into four segments — Electrification Products, Robotics and Motion, Industrial Automation and Power Grids — effective Jan 1, 2017.

Furthermore, the company has taken a number of transformational actions to position itself for profitable growth. In 2017, it completed and announced several important acquisitions, divested certain businesses and executed business model changes. Additionally, ABB shifted its core operations to higher growth segments, thus boosting its competitiveness and de-risking the portfolio. In order to unlock its digital capabilities, ABB had also announced a strategic partnership with Microsoft Corporation MSFT to shore up its capabilities in the industrial internet market by combining cloud technology with industrial digital technology.

Meanwhile, ABB remains optimistic about the White-Collar Productivity savings program, which has surpassed expectations since its inception. Last year, the company achieved its cost-reduction target under this $1.3 billion program.

Liquidity

ABB’s cash and cash equivalents as of Mar 31, 2018 were $4,162 million compared with $5,562 million as of Mar 31, 2017. Total long-term debt declined to $5,285 million at the quarter-end, from $6,709 million as of Dec 31, 2017.

Acquisitions and Partnerships

ABB recently completed the acquisition of B&R — an independent provider dealing in product- and software-based, open-architecture solutions for machine and factory automation globally. This buyout is expected to bridge the gap between machine and factory automation and create an exclusive, comprehensive automation portfolio for clients across the world.

Also, the acquisition of the data-transmission business of the KEYMILE Group should enable ABB to expand its communication networks business footprint in the industrial, transportation and infrastructure domains. It is anticipated to add reliable communications technology offerings to the company’s diverse portfolio, thus helping ABB fortify its foothold in digital electrical grids.

ABB also announced its intention to acquire GE Industrial Solutions for $2.6 billion. This buyout would further strengthen the company’s position in Electrification by improving market access in North America.

To Conclude

Over the long haul, ABB believes that all its three major markets namely, utilities, industry and transport & infrastructure, hold great potential. The company expects utility customers to invest further in transmission and distribution projects and renewable sources like solar and wind.

Going ahead, the company expects to gain from high investments in ultra high voltage DC power transmission projects in mature and emerging markets and continuing investments in maintenance of aging electric infrastructures.

However, ABB has been facing strong structural headwinds in its largest business — Power Grids — over the past few quarters. This trend is likely to continue in 2018.

ABB carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the same space include A. O. Smith Corporation AOS and Emerson Electric Co. EMR. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1  Rank (Strong Buy) stocks here.

A. O. Smith has an impressive earnings surprise history. The company surpassed estimates thrice in the trailing four quarters, with an average beat of 3.6%.

Emerson exceeded estimates twice in the trailing four quarters, with an average beat of 2.8%.

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