ABB Q3 net income up 26%

October 23, 2008
ABB
News

Summary

ABB reported increases in revenues, earnings before interest and taxes (EBIT), net income and cash flow in the third quarter of 2008.

October 23, 2008 - ABB reported double-digit increases in revenues, earnings before interest and taxes (EBIT), net income and cash flow in the third quarter of 2008 as the company continued to improve its operational performance.EBIT grew 25 percent to $1.3 billion, including a net expense of approximately $100 million, equivalent to roughly one percentage point of EBIT margin, resulting from the mark-to-market treatment of hedging transactions. Net income rose 26 percent to $927 million and cash from operations increased to $1.1 billion. Revenues grew 22 percent (local currencies: 16 percent) on the successful execution of the strong order backlog. Orders received increased 7 percent (local currencies: 1 percent) to $8.9 billion. Orders for power equipment showed continued robust growth in all regions and orders for industrial automation products also increased at a double-digit pace in most markets. Large project orders declined significantly, reflecting in part a comparison with a very strong quarter a year ago. In addition, customers’ decisions on a number of industrial and infrastructure investments have been delayed as a result of the recent market uncertainty.“Our solid revenue, earnings and cash flow growth in the third quarter demonstrate our ability to successfully execute across all of our businesses,” said Joe Hogan, ABB's chief executive officer. “We continue to benefit from long-term trends to expand and upgrade power infrastructure, improve industrial productivity and lower environmental impact.“It’s too early to say how the recent financial-market turmoil will impact our markets in the short term but our operational strength and flexibility, leading technology, competitive cost base and solid balance sheet put us in a good position to meet a tougher market. We are on target to deliver on our 2008 growth guidance.” Summary of Q3 2008 resultsOrders received and revenuesDemand for power transmission and distribution products and energy-efficient industrial equipment remained solid in most markets during the third quarter of 2008, contributing to double-digit order growth in the Power Products and Automation Products divisions. Utility customers in mature markets continued to invest in grid refurbishment to improve reliability and in emerging markets to expand capacity. Demand in industries such as oil and gas and metals and minerals also remained positive, although some smaller customers in the mining industry began to delay investments in the face of the current market uncertainty. Shorter-cycle industries, such as construction and automotive, remained weak.Orders were significantly lower in the Power Systems division and little changed in the Process Automation division, primarily the result of the timing of large project awards. Robotics orders were also little changed as lower demand from the automotive industry was offset by higher orders from other industry sectors.Large orders (more than $15 million) decreased in the quarter by 29 percent (local currencies: 31 percent) and accounted for 11 percent of total orders compared to 17 percent in the same quarter in 2007. Base orders (less than $15 million) were up 14 percent (local currencies: 8 percent) and were higher in all divisions except Power Systems.Regionally, orders grew strongest in the Americas (up 36 percent; 33 percent in local currencies), led by power infrastructure investments in the U.S., Canada, and Brazil. Asian orders grew 25 percent in the quarter (local currencies: 20 percent), mainly the result of demand for automation products and systems. In Europe, Power Products increased orders by 28 percent (local currencies: 19 percent) but overall orders were down 5 percent (local currencies: 13 percent), mainly the result of significantly lower order intake in Power Systems, which recorded a $400-million wind power order in the same quarter a year earlier.Revenues increased at a double-digit rate in both U.S. dollar and local currency terms across all divisions, reflecting the execution of the strong order backlog. Price increases in previous quarters to offset higher raw material costs also supported the revenue improvement. The order backlog at the end of September 2008 amounted to $27.2 billion, an increase of $5 billion, or 23 percent (local currencies: 25 percent) compared to the end of the same quarter in 2007. The order backlog was unchanged in local currencies compared to the end of the second quarter of 2008, down $2 billion in U.S. dollar terms.Earnings before interest and taxesThe EBIT increase in the quarter was mainly the result of volume growth. The EBIT margin continued to benefit from increased sourcing from emerging economies and the focus on improved risk and project management. Included in EBIT is a cost of approximately $100-million representing the valuation of hedges not qualifying under hedge accounting rules. This impact was driven by a sharp decrease in commodity prices and the increase in the U.S. dollar compared to most European currencies during the quarter. On a year-to-date basis, the overall net impact of this accounting treatment is negligible.Net incomeNet income of $927 million also reflected ABB’s strong cash position and low debt levels, which resulted in a positive finance net of $13 million compared to an expense of $16 million in the third quarter of 2007. The effective tax rate was 25 percent, compared to 22 percent in the same quarter of 2007.Balance sheet and cash flowNet cash at the end of the third quarter was $4.8 billion compared to $6 billion at the end of the previous quarter. The decrease resulted mainly from the payment in July of the 2007 dividend of $1.1 billion (in the form of a nominal value reduction) and an acquisition in the quarter. In addition, the company made cash payments of approximately $160 million related to its 2.2-billion Swiss franc share buy-back program.Cash flow from operations increased by $235 million compared to the third quarter of 2007, reflecting the higher volume of business and the effect of ongoing working capital management measures. Also included in cash flow from operations was a payment of $25 million to asbestos trusts.Management changesJoseph M. Hogan took up responsibilities as Chief Executive Officer of the ABB Group on September 1, 2008. In August 2008, ABB announced the departure of Ravi Uppal, President of Global Markets and a member of the ABB Group Executive Committee. Effective immediately, the regional organization will be reporting to Michel Demaré in addition to his Chief Financial Officer role.AcquisitionsDuring the third quarter, ABB completed its acquisition of U.S. transformer company Kuhlman Electric Corporation, aimed at expanding ABB’s power products portfolio in the Americas. Kuhlman’s September 2008 results have been consolidated into ABB’s third-quarter financial statements, resulting in a contribution of approximately $30 million in orders received and revenues.ComplianceABB continues to cooperate with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding various suspect payments that have occurred across several years. ABB also continues to cooperate with various anti-trust authorities, including the European Commission, regarding certain allegedly anti-competitive practices. As previously communicated, the outcome of these matters as well as previously disclosed matters could have a material impact on the company's consolidated operating results, cash flows and financial position.OutlookOver the long-term, demand for the refurbishment and expansion of power transmission and distribution infrastructure is expected to remain strong in all regions. Demand for high-efficiency industrial automation systems and equipment that improves customer productivity and reduces environmental impacts, is expected to fuel future growth in automation activities.However, the recent turbulence in the global banking sector and credit markets makes near-term forecasts difficult. The effect of recent developments on global macroeconomic growth in general, and on utility and industrial investments in particular, cannot yet be determined.For the full-year 2008, ABB confirms its guidance of 15-20 percent growth for power-related activities and clearly above 10 percent growth in its automation activities. Learn More

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