Thursday, April 23, 2009

Earnings Miss From ABB

I was anticipating ABB's earnings announcement today, and it was a miss. The stock ran up a bit over the past couple of weeks, and is lower today by about 3%. Let's look at the highlights:

Swiss engineering group ABB gave a cautious outlook after it missed forecasts with a 35 percent drop in first-quarter profit, as industrial firms hesitated about buying equipment due to the economic downturn.

ABB, which sells power equipment to utilities as well as to oil and gas companies, said the business environment in March had improved but it was still too early to say whether the bottom of the market downturn had been reached.

"Visibility in ABB's markets for the remainder of 2009 remains limited," the group said in a statement, noting it will face a difficult comparison base in the second quarter, and is looking to cut even more costs.

ABB is expected to benefit from government stimulus packages designed to counter the slowdown, but said on Thursday it could not forecast when that would start to help the group or when the availability of funding would improve.

  • Net profit fell to $652 million, missing the average forecast of $702 million in a Reuters poll of 21 analysts.
  • Orders at the group fell 16 percent to $9.15 billion, ahead of the average estimate of $8.21 billion forecast in the Reuters poll. Sales missed expectations with a 9 percent drop to $7.21 billion.
  • ABB saw a first-quarter 18 percent drop in its smaller orders, which make up the bulk of sales and are more profitable than larger contracts as customers cut back on investments in products like robots as well as drives, motors and generators.
  • The group's operating profit margin fell to 12 percent in the first quarter, from 17 percent a year earlier.
  • The group, which had net cash of $4.8 billion at the end of the first quarter, down from $5.4 billion at end-2008, is still on the look out for bolt-on acquisitions, Hogan said. He added ABB's first priority would be to keep cash.





My Take: I wasn't surprised that they missed on earnings. Large scale projects are being shelved right now. There isn't access to financing, and companies are holding onto cash. The orders numbers weren't bad (better than expected--that's all that matters in this market). I didn't like to see the drop in margins from 17 to 12 percent. That is the most troubling statistic for me.

The positives for ABB are their reach into China and other emerging markets. They are also well positioned to provide services to the US and Europe as they are upgrading their power systems. I like this company, but for the mean time, the stock may be dead money.

Disclosure: Long ABB

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