Matt LaWell, Industry Week
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ABB Beats Quarterly Expectations in Challenging Market

Oct. 21, 2015
The engineering giant's net profit dropped 21% from the second quarter to the third, but still topped analysts' expectation by $50 million and close to 10%. The numbers 'reflect he challenging markets we race,' according to the company's CEO.

ZURICH — Swiss-Swedish engineering giant ABB posted better-than-expected earnings on Wednesday, even as its net profit plunged amid “challenging” conditions, including slumping demand in China and the United States, as well as lower oil prices.

For the June-to-September quarter, ABB’s net profit fell 21% to $577 million, beating analysts’ expectations that it would rake in $527 million. The group’s revenue slumped 13% to $8.5 billion.

That fall was, at least in part, attributed to the strengthening U.S. dollar: Discounting currency fluctuations, the decline stood at only 2.0%, ABB said in its earnings statement.

Company chief Ulrich Spiesshofer said in the statement that the third quarter results “reflect the challenging markets we face,” blaming “short-cycle demand in oil and gas.”

Plunging commodity prices — for oil, but also for metals — forced a “massive contraction” in spending by many oil and mining companies, with a disastrous impact on their suppliers, Spiesshofer said in a conference call. This was reflected in a sharp decline in orders, which fell 22% year-on-year, or 12% when not counting the impact of currency fluctuations.

The Chinese and U.S. markets were also down, he said, also noting that the quarter was being compared with a very strong period last year. 

The results did not come as a surprise.

ABB, which is undertaking a vast restructuring program, lowered its sales growth target for the next five years last month and unveiled a cost-cutting program aimed at achieving $1.0 billion in savings by 2017.

The company said then that its new sales target of between 3 and 6% through 2020 had been “aligned to new market realities.” 

Spiesshofer said Wednesday the group was not yet planning any job cuts, and would instead rely on “natural attrition.”  

In the third quarter, only the division dedicated to power products and power systems saw revenues increase, while they were down in all other units, “primarily due to a lack of short-cycle volumes and weak demand in many parts of the distribution channels in the first nine months of 2015,” ABB said.

In the short term, the company said it expected to see “continued uncertainty,” and that “Some macroeconomic signs in the U.S. remain positive, and growth in China is expected to continue, although at a slower pace than in 2014.” But it warned that “the market remains impacted by modest growth in Europe and geopolitical tensions in various parts of the world,” and that “current oil prices and foreign exchange translation effects” would continue to affect its bottom line.

On a positive note, Spiesshofer said the company, which halted all expansion plans last year, felt “ready to reengage in acquisition,” adding though that there was “no rush.”

Following the announcement, ABB saw its share price swell 1.39% in midday trading as the Swiss stock exchange’s main SMI index dipped 0.3%

Copyright Agence France-Presse, 2015

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