Bloomberg News

ABB’s Hogan Highlights M&A Thirst as Earnings Outlook Pared

November 07, 2011

Nov. 4 (Bloomberg) -- ABB Ltd. Chief Executive Officer Joe Hogan, outlining his first mid-term strategy paper since taking the helm in 2008, said acquisitions could give a 3 percent to 4 percent annual sales boost, helping the world’s largest maker of power-transmission gear counter an economic slowdown.

Sales excluding takeovers are set to advance 7 percent to 10 percent annually, Zurich-based ABB said in a statement today. Purchases could restore ABB’s trajectory versus a prior target range of 8 percent to 11 percent set for the period through 2011.

Hogan is responding to the challenges of growing Asian competition for infrastructure projects and his approach contrasts with that of his predecessor, Fred Kindle, whose three-year term was largely spent restructuring and cutting costs. The company said it expects to save approximately $1 billion in costs next year.

“What happens at ABB in the next few years is not ’more of the same,” Hogan said in a presentation. “We have to really start to expand ourselves more broadly and more balanced across the globe and go deeper into specific markets, such as renewables, data centers or services.”

As well as new sales goals, ABB gave lower targets for earnings per share growth for the years through 2015. Earnings per share will increase on average between 10 percent and 15 percent per year, excluding purchases. Purchases could add another 3 percent. That compares with a previous goal for the years 2007 to 2011 for annual growth of as much as 20 percent.

Prized War Chest

The CEO said he’d employ ABB’s “best-in-class” balance sheet in a “disciplined” way to pursue targets.

Hogan has spent more than $6 billion on acquisitions since May 2010, Bloomberg data show. The compares to hardly any transactions under his predecessor Fred Kindle between 2005 and 2008. The deals, including the $4.15 billion purchase of industrial motor maker Baldor Electric Co., have not been cheap, Citigroup analyst Mark Fielding said, prior to today’s outlook. ABB is in a position to spend as much as $15 billion more, he said.

“ABB must better balance its portfolio globally,” said UniCredit analyst James Stettler. “Buying Baldor was one step in that direction, and others will follow.” Hogan’s largest acquisitions, Baldor and Ventyx Inc., have been U.S.-based companies.

The Swiss company generated just under 20 percent of revenue in the Americas last year, compared with 39 percent in Europe and 28 percent in Asia, Bloomberg data show.

“I want to see us deeper into the European marketplace, I want us to see gain share in Europe,” Hogan said. “We export far too much to developing economies and we have to address that if we want to be competitive in those areas.”

ABB is switching to a margin forecast based on earnings before interest and taxes, depreciation and amortization. That measure should reach between 13 percent and 19 percent per year. It had previously guided for an Ebit margin of 11 percent to 16 percent.

--Editors: Andrew Noel, Thomas Mulier

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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