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ABB Ltd. (ABB - Snapshot Report) reported third-quarter 2013 earnings per share of 36 cents per share, a penny below the Zacks Consensus Estimate of 37 cents. The quarterly earnings improved 9.1% from the prior-year earnings of 33 cents.

Despite the prevailing difficult economic conditions, the company continued to receive orders in key sectors and geographies. The company also benefited from execution of its strong backlog.  

Total Revenue and Orders

Total revenue in the quarter increased 9% year over year in terms of local currency to $10.5 billion. Revenue growth was primarily driven by the combination of stronger growth in early-cycle businesses and execution of the order backlog. In addition, service revenues in the quarter increased 5% year on year and represented 15% of total revenue.

Order level in the quarter declined 2% in terms of local currency to $9.1 billion, with a backlog of $27.4 million. Orders in Europe grew driven by double-digit increases in markets like Norway, Sweden, Germany and Switzerland. This increase more than offset the continued weakness in southern Europe and a decline in the UK. In the Americas, US orders were flat year over year, as lower large orders were compensated by solid growth in base orders. Order growth in China, India and South Korea contributed to higher orders in Asia, while orders in the Middle East and Africa declined due to the delay in large project awards.

Segment Results

Power Products revenues were $2.7 billion, up 7% in terms of local currency. Revenue growth reflected strong execution of the order backlog and growth in service volumes. Order rate increased 3% to $2.5 billion driven by Industrial and power distribution demand while utilities continued to make selective investments in power transmission.

Power Systems revenues were $2.1 billion, up 10% in terms of local currency. Revenues growth was again driven by execution of the order backlog. Orders in Power System were down significantly by 30% in local currency to $1.2 billion. The division’s strategic repositioning to increase project selectivity and enhance margins was the primary reason for lower orders received in the quarter. In addition, economic uncertainties across most regions continued to result in project delays.

Discrete Automation& Motion revenues were $2.4 billion, up 10% in terms of local currency. Revenues grew due to execution of the order backlog and increased sales of products such as variable-speed drives. Service orders and revenues grew at a double-digit pace. In addition, the Power-One acquisition, completed in July, also contributed to the growth in orders and revenues. Order level increased by 6% to $2.4 billion. Orders during the quarter were driven mainly by continued investments in robotics equipment from automotive and general industry as well as demand for products to improve industrial productivity.

Low Voltage Products revenues were $2.0 billion, up 6% in terms of local currency. Revenue growth during the quarter was driven by Europe and Asia including a double-digit increase in China. Revenues also grew modestly higher in the Americas. Service orders and revenues grew significantly faster than total orders and revenues for the division. Order increased by 3%, aided by contribution from the acquisition of Thomas & Betts.

Process Automation revenues increased 13% in local currency to $2.2 billion. Strong revenue growth was driven by the execution of the order backlog. Service revenues remained flat year on year. Order level was flat year over year at $1.7 billion, due to fewer large orders in the oil and gas, and mining and marine sectors compared with the prior-year period.

Income and Expenses

Income from operations was $1.3 billion, reflecting a 16% increase year over year. The increase was driven by commodity timing differences.  

Operational EBITDA in the quarter amounted to $1.6 billion, up 10% year over year.  

Balance Sheet and Cash Flow

At the end of the quarter, ABB reported cash from operations of $1.2 billion compared with $768 million in the prior-year quarter. The higher cash level reflects efficient working capital management.

Net debt was $3.4 billion at the end of Jun 2013 and includes the impact from the net payment in July of about $750 million for the acquisition of Power One.

Outlook

ABB maintains a positive long-term outlook. Rising investments in grid upgrades and industries spending more on automation solutions to increase energy efficiency and productivity are the benefactors for the company. However, short-term uncertainties prevail with the continuing macroeconomic volatility.

ABB currently has a Zacks Rank #3 (Hold). Other stocks in the similar industry worth a look at the moment are AO Smith Corp. (AOS - Snapshot Report), EnerSys (ENS - Snapshot Report) and Rexnord Corporation (RXN - Analyst Report). AO Smith has a Zacks Rank #1 (Strong Buy), while the other two carry a Zacks Rank #2 (Buy).

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