Bloomberg News

ABB More Confident on Outlook as Chinese Orders Increase

July 26, 2012

ABB Ltd. (ABBN), the maker of factory robots and power-transmission equipment, said it’s more confident about its short-term outlook as China’s construction market strengthens and orders at the low-voltage unit improved.

ABB has received more sales contracts at its power and automation businesses in China in recent months, as well as “sustained order growth across the portfolio in the U.S.,” the Zurich-based company said today as it reported second quarter earnings.

“We are seeing some strengthening in the China construction market,” Chief Executive Officer Joe Hogan said in an online video. “We are hoping that extends into the second half,”

Hogan, who joined ABB from General Electric Co. (GE:US) in 2008, is betting that income from the acquisitions of Baldor Electric Co. and Thomas & Betts Corp., worth just over $8 billion combined, will make up for weak growth in the low-voltage products division over the first half.

ABB rose as much as 3.2 percent to 16.29 Swiss francs at 9:08 a.m. in Zurich, the highest intraday price since May 8. That pared the stock’s decline this year to 4.4 percent, valuing the manufacturer at 37.7 billion francs ($38 billion).

Currency Effects

Second-quarter net income fell 27 percent from a year earlier to $656 million. Profit missed an estimate of $710.8 million in a survey of analysts by Bloomberg. Sales were unchanged at $9.7 billion, also short of analysts’ prediction. Currency shifts held back sales and earnings, cutting $600 million from revenue in the period, ABB said today in a statement.

“The comments about China construction were a surprise,” Richard Frei, an analyst an Zuercher Kantonalbank, said in a telephone interview. “I thought it would take some time” to for that market to recover. Analysts may change their estimates for the second half, depending on the Thomas & Betts contribution to profitability, he said.

Orders for low-voltage products in China rebounded in the quarter, while automation orders increased in Europe as demand in countries such as the U.K., Norway and in eastern Europe offset weakness in southern Europe, ABB said. Cost savings totaled $277 million in the second quarter, ABB said, beating a target of $1 billion spread over four quarters.

Acquisition Costs

Net income was hurt as the U.S. dollar rose against other currencies and by transaction and amortization-related charges of about $100 million tied to the purchase of Thomas & Betts, ABB said. Doubts about economic growth continued to curtail large power investments “in most regions,” as weaker pricing in the backlog cut sales, the company said.

“The second-quarter results provided several reasons to be more optimistic,” Hogan said in a statement. “Management is cautiously optimistic that the business environment over the remainder of 2012 will support continued growth and profitability in line with its 2011 to 2015 targets.”

ABB’s comments contrast with competing low-voltage supplier Eaton Corp. (ETN:US), which lowered its earnings and sales targets for the year on July 23, citing weakness in demand outside its home U.S. market.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

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


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Companies Mentioned

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    (General Electric Co)
    • $26.21 USD
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  • ETN
    (Eaton Corp PLC)
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