Swiss engineering group ABB's cost-cutting limited a fall in profit in the second quarter, but the group remained cautious for the rest of the year as customers hesitate about spending on equipment.A couple of things here. First, I was looking for about the opposite reaction. I had hoped the company would have stronger results and outlook than I expected, but the market would get scared off by some piece of data. Actually, although I love where this company is positioned, they didn't say much that impressed me, and Wall Street (they are easy to please these days) likes it, as the stock is trading higher in the premarket. That's about all I have to say here. It will get better for them, and eventually will be very good.
Net profit slumped by 31 percent to $675 million, but this was well ahead of the average forecast of $592 million given by analysts in a Reuters poll as ABB has already saved $500 million this year.
The seller of power equipment to utilities as well as to oil and gas companies is looking to cut costs by $2 billion by the end of 2010 as demand in the industrial, construction and automotive markets wanes as a result of the economic slump.
"Factories within some units, such as power products, were running at full capacity to execute order backlog and this supported the earnings before interest and tax (EBIT) figure," a spokesman for the group said. The company has so far slashed around 3,000 jobs, including contract, temporary and permanent workers, and has also cut costs by buying products at lower prices as well as by shifting production to emerging markets.
"Uncertainty surrounding economic recovery, the stability of raw material prices and the availability of project funding continue to influence the timing of many power investment decisions," the group said. Demand had fallen across all regions and there were still no signs of any green shoots, ABB said.
ABB is expected to benefit from government stimulus packages designed to counter the slowdown, but the group said it was unable to forecast when these programmes would start to help ABB or when the availability of funding would improve.
The group, which is the world's biggest supplier of transformers for electrical grids, saw its second-quarter orders tumble 35 percent to $7.3 billion, roughly in line with expectations, while sales fell 12 percent to $7.9 billion.
It confirmed its targets for 2007-2011, excluding its Robotics unit, which
needs further restructuring.
ABB is aiming for revenue growth of between 8 percent and 11 percent and for an earnings before interest and tax (EBIT) margin of between 11 percent and 16 percent in the mid-term.
Also, I saw a story about ABB and the technology they are selling to China. It was interesting to see that all their best products are being bought there as China is demanding the newest and best stuff for alternative energy projects (I was hoping that might be the US role, but sadly no). Here it is, via Bloomberg.
Disclosure: Long ABB