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ABB's Q4 Earnings Beat on Strong Robotics & Motion Business
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ABB Ltd. reported operational earnings per share of 33 cents for fourth-quarter 2017, flat year over year, as modest top-line growth was somewhat offset by elevated expenses. However, earnings trumped the Zacks Consensus Estimate of 25 cents by an impressive 32%.
For 2017, net income rose 17% year over year to $2,213 million, largely driven by lower transformation-related and restructuring-related expenses, and net gains realized from the business divestments. However, operational EPS came in 1% lower in constant currency at $1.25, compared to 2016.
Quarterly revenues were up 3% year over year at $9,280 million, but missed the Zacks Consensus Estimate of $9,398.3 million. Individually, revenues witnessed growth in just one of the four segments of the company, with growth in Robotics and Motion more than offsetting contraction in Power Grids. The Electrification Products and Industrial Automation segments remained mostly flat.
For 2017, revenues inched up 1% to $34,312 million, as gains in Electrification Products and Robotics and Motion more than offset the declines in Industrial Automation and Power Grids.
Quarterly Segment Details
Electrification Products (down 1% year over year to $2,696 million): Orders were up 10% year over year to $2,556 million, driven by strong demand across all regions and end markets. Data center, food and beverage and electric vehicle fast-charging solutions displayed particular strength.
Robotics and Motion (up 6% to $2,187 million): Sales grew steadily on solid demand trends in robotics and energy-efficient solutions, and strong execution of the order backlog.Orders of this segment moved up 6% year over year to $2,040 million on a year-over-year basis, backed by improved demand from process end markets, which was somewhat offset by a decline in large orders due to the timing of tender awards.
Industrial Automation (flat at $2,012 million): Orders reverted to the negative trend, declining 1% year over year to $1,796 million, owing to selective capital expenditure investments in mining and specialty vessels.
Power Grids (down 7% to $2,809 million): Lower order backlog, primarily in EPC, thwarted revenue growth. Orders continued the downward trend and declined 16% to $2,493 million, mainly due to the exceptionally large UHVDC order that was awarded in India in 2016.
Total orders were up 2% year over year at $8,478 million, but declined 3% on a comparable basis,as strong base order development was more than offset by the impact of lower large orders in Power Grids and Industrial Automation. Base orders grew 9% on a year-over-year basis, while large orders amounted to just 7% of the company’s total orders, in line with ABB’s strategy. The order backlog at the quarter end amounted to $22.4 billion (down 4% year over year).
On a geographic basis, demand was positive in the European countries, with moderate overall growth and good timing of large capital investments. Orders displayed sound growth in the Americas as well, fueledby elevated demand in construction and general industries, and improvement in process industries. The Americas grew 12% in total orders, driven by strong contribution from the United States, Canada and Brazil. The Asia, Middle East and Africa (AMEA) region witnessed a mixed performance, with positive base order development in India, South Korea and Australia, which were slightly offset by order declines in China.
Book-to-bill ratio at the end of the reported quarter was 0.91, down from 0.92 recorded in the comparable quarter a year ago.
Operational earnings before interest, taxes and amortization (“Operational EBITA”) in the quarter under review fell 7% year over year in comparable terms to $1,021 million. The figure benefited from the positive net savings effect, which was more than offset by commodity price escalation, negative impact from volume and investments in growth, and business transformation.
Operational EBITA margin also contracted 150 basis points to 10.9%, hurt by charges related to the EPC businesses.
In third-quarter 2016, ABB had launched the third stage of the revamped version of its “Next Level Strategy” which focuses on three areas, namely profitable growth, relentless execution and business-led collaboration. The third stage calls for restructuring the company’s divisions into four market-leading entrepreneurial businesses, unlocking its full digital potential, accelerating momentum in operational excellence and enhancing the company’s brand.
ABB restructured its business into four segments: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids, effective from Jan 1, 2017.
ABB has also taken a number of transformational actions to position itself for profitable growth. In 2017, the company completed and announced several important acquisitions, divested certain businesses and executed business model changes. ABB shifted its core operations to higher growth segments, boosting its competitiveness and de-risking the portfolio. Further, in order to unlock its digital capabilities, ABB had announced a strategic partnership with Microsoft Corporation (MSFT - Free Report) , to shore up its capabilities in the industrial internet market, by combining cloud technology with industrial digital technology.
Moreover, ABB is optimistic about the White-Collar Productivity savings program, which has surpassed expectations since its inception. The company achieved its cost-reduction target under the program of $1.3 billion last year, which exceeds the original ambitions by more than $300 million. Also, the combined restructuring and implementation costs in the implementation came roughly $300 million lower than initially expected.
Liquidity & Cash Flows
ABB’s cash and cash equivalents as of Dec 31, 2017, were $4,526 million compared with $3,644 million as of Dec 31, 2016. Long-term debt rose to $6,709 million at the quarter end from $5,800 million as of Dec 31, 2016.
ABB’s cash flow from operating activities came in at $1,869 million for the fourth quarter, up 31% compared with $1,428 million in the comparable quarter in 2016. The rise reflected stronger working capital management and improvements in collections from customers.
Divestitures, Acquisitions and Partnerships
During the year, ABB closed its acquisition of B&R — an independent provider dealing in product- and software-based, open-architecture solutions for machine and factory automation globally. This buyout will bridge the gap in machine and factory automation which ABB has been facing, and create an exclusive, comprehensive automation portfolio for clients across the world.
In addition to this, ABB acquired the data-transmission business of the KEYMILE Group. This acquisition will enable the company to expand its communication networks business footprint in the industrial, transportation and infrastructure domains. It will add reliable communications technology offerings to ABB’s diverse portfolio, helping it fortify its foothold in digital electrical grids.
Furthermore, ABB announced its intention to acquire GE Industrial Solutions for $2.6 billion, which would further strengthen its position in Electrification by improving market access in North America. The buyout will establish a long-term strategic supply relationship for GE Industrial Solutions as well as ABB products that General Electric sources currently.
These buyouts will help accelerate ABB’s operational momentum.
Share Repurchase
At the end of third-quarter 2016, ABB announced completion of the $4-billion share buyback program introduced in September 2014. Under the program, the company had repurchased approximately 171.3 million shares for about $3.5 billion. Consequently, ABB had announced a new share buyback program of up to $3 billion from 2017 through 2019, highlighting consistent strength in cash generation and financial position.
As the GE Industrial Solutions transaction is in progress, ABB has decided to put its previously-announced planned share buyback program on hold.
To Conclude
ABB is facing a mixed macroeconomic and geopolitical climate, as the United States and Europe remain buoyant amid modest global growth and heightened uncertainties. The company is enjoying strong demand from the automotive and general industry sectors for robotic solutions. Nevertheless, lower capital spending for its key upstream energy end-markets and foreign exchange volatility might continue to dent financials.
Despite the negatives, we believe the company’s long-term prospects are stable. The company’s three major customers in utilities, industry, and transport & infrastructure are likely to drive growth. Apart from this, encouraging development in electricity value chain, rapid progress of Internet of things, services and people, and a surge in energy-efficient transport and infrastructure bode well.
Moreover, we look favourably upon ABB’s recent deal to acquire General Electric Company’s (GE - Free Report) global electrification solutions business. This acquisition will enable the integration of ABB’s Electrification Products division into GE Industrial Solutions, resulting in a unique global portfolio and a complete offering for North American as well as global customers. The deal has significant value creation potential and will expand the company’s installed base considerably.
Zacks Rank & Stock to Consider
ABB currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is A.O. Smith Corporation (AOS - Free Report) , holding a Zacks Rank #2 (Buy).
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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
Image: Bigstock
ABB's Q4 Earnings Beat on Strong Robotics & Motion Business
ABB Ltd. reported operational earnings per share of 33 cents for fourth-quarter 2017, flat year over year, as modest top-line growth was somewhat offset by elevated expenses. However, earnings trumped the Zacks Consensus Estimate of 25 cents by an impressive 32%.
For 2017, net income rose 17% year over year to $2,213 million, largely driven by lower transformation-related and restructuring-related expenses, and net gains realized from the business divestments. However, operational EPS came in 1% lower in constant currency at $1.25, compared to 2016.
Quarterly revenues were up 3% year over year at $9,280 million, but missed the Zacks Consensus Estimate of $9,398.3 million. Individually, revenues witnessed growth in just one of the four segments of the company, with growth in Robotics and Motion more than offsetting contraction in Power Grids. The Electrification Products and Industrial Automation segments remained mostly flat.
For 2017, revenues inched up 1% to $34,312 million, as gains in Electrification Products and Robotics and Motion more than offset the declines in Industrial Automation and Power Grids.
Quarterly Segment Details
Electrification Products (down 1% year over year to $2,696 million): Orders were up 10% year over year to $2,556 million, driven by strong demand across all regions and end markets. Data center, food and beverage and electric vehicle fast-charging solutions displayed particular strength.
Robotics and Motion (up 6% to $2,187 million): Sales grew steadily on solid demand trends in robotics and energy-efficient solutions, and strong execution of the order backlog.Orders of this segment moved up 6% year over year to $2,040 million on a year-over-year basis, backed by improved demand from process end markets, which was somewhat offset by a decline in large orders due to the timing of tender awards.
Industrial Automation (flat at $2,012 million): Orders reverted to the negative trend, declining 1% year over year to $1,796 million, owing to selective capital expenditure investments in mining and specialty vessels.
Power Grids (down 7% to $2,809 million): Lower order backlog, primarily in EPC, thwarted revenue growth. Orders continued the downward trend and declined 16% to $2,493 million, mainly due to the exceptionally large UHVDC order that was awarded in India in 2016.
Total orders were up 2% year over year at $8,478 million, but declined 3% on a comparable basis,as strong base order development was more than offset by the impact of lower large orders in Power Grids and Industrial Automation. Base orders grew 9% on a year-over-year basis, while large orders amounted to just 7% of the company’s total orders, in line with ABB’s strategy. The order backlog at the quarter end amounted to $22.4 billion (down 4% year over year).
On a geographic basis, demand was positive in the European countries, with moderate overall growth and good timing of large capital investments. Orders displayed sound growth in the Americas as well, fueledby elevated demand in construction and general industries, and improvement in process industries. The Americas grew 12% in total orders, driven by strong contribution from the United States, Canada and Brazil. The Asia, Middle East and Africa (AMEA) region witnessed a mixed performance, with positive base order development in India, South Korea and Australia, which were slightly offset by order declines in China.
Book-to-bill ratio at the end of the reported quarter was 0.91, down from 0.92 recorded in the comparable quarter a year ago.
Operational earnings before interest, taxes and amortization (“Operational EBITA”) in the quarter under review fell 7% year over year in comparable terms to $1,021 million. The figure benefited from the positive net savings effect, which was more than offset by commodity price escalation, negative impact from volume and investments in growth, and business transformation.
Operational EBITA margin also contracted 150 basis points to 10.9%, hurt by charges related to the EPC businesses.
ABB Ltd Price, Consensus and EPS Surprise
ABB Ltd Price, Consensus and EPS Surprise | ABB Ltd Quote
Next Level Strategy: Stage 3
In third-quarter 2016, ABB had launched the third stage of the revamped version of its “Next Level Strategy” which focuses on three areas, namely profitable growth, relentless execution and business-led collaboration. The third stage calls for restructuring the company’s divisions into four market-leading entrepreneurial businesses, unlocking its full digital potential, accelerating momentum in operational excellence and enhancing the company’s brand.
ABB restructured its business into four segments: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids, effective from Jan 1, 2017.
ABB has also taken a number of transformational actions to position itself for profitable growth. In 2017, the company completed and announced several important acquisitions, divested certain businesses and executed business model changes. ABB shifted its core operations to higher growth segments, boosting its competitiveness and de-risking the portfolio. Further, in order to unlock its digital capabilities, ABB had announced a strategic partnership with Microsoft Corporation (MSFT - Free Report) , to shore up its capabilities in the industrial internet market, by combining cloud technology with industrial digital technology.
Moreover, ABB is optimistic about the White-Collar Productivity savings program, which has surpassed expectations since its inception. The company achieved its cost-reduction target under the program of $1.3 billion last year, which exceeds the original ambitions by more than $300 million. Also, the combined restructuring and implementation costs in the implementation came roughly $300 million lower than initially expected.
Liquidity & Cash Flows
ABB’s cash and cash equivalents as of Dec 31, 2017, were $4,526 million compared with $3,644 million as of Dec 31, 2016. Long-term debt rose to $6,709 million at the quarter end from $5,800 million as of Dec 31, 2016.
ABB’s cash flow from operating activities came in at $1,869 million for the fourth quarter, up 31% compared with $1,428 million in the comparable quarter in 2016. The rise reflected stronger working capital management and improvements in collections from customers.
Divestitures, Acquisitions and Partnerships
During the year, ABB closed its acquisition of B&R — an independent provider dealing in product- and software-based, open-architecture solutions for machine and factory automation globally. This buyout will bridge the gap in machine and factory automation which ABB has been facing, and create an exclusive, comprehensive automation portfolio for clients across the world.
In addition to this, ABB acquired the data-transmission business of the KEYMILE Group. This acquisition will enable the company to expand its communication networks business footprint in the industrial, transportation and infrastructure domains. It will add reliable communications technology offerings to ABB’s diverse portfolio, helping it fortify its foothold in digital electrical grids.
Furthermore, ABB announced its intention to acquire GE Industrial Solutions for $2.6 billion, which would further strengthen its position in Electrification by improving market access in North America. The buyout will establish a long-term strategic supply relationship for GE Industrial Solutions as well as ABB products that General Electric sources currently.
These buyouts will help accelerate ABB’s operational momentum.
Share Repurchase
At the end of third-quarter 2016, ABB announced completion of the $4-billion share buyback program introduced in September 2014. Under the program, the company had repurchased approximately 171.3 million shares for about $3.5 billion. Consequently, ABB had announced a new share buyback program of up to $3 billion from 2017 through 2019, highlighting consistent strength in cash generation and financial position.
As the GE Industrial Solutions transaction is in progress, ABB has decided to put its previously-announced planned share buyback program on hold.
To Conclude
ABB is facing a mixed macroeconomic and geopolitical climate, as the United States and Europe remain buoyant amid modest global growth and heightened uncertainties. The company is enjoying strong demand from the automotive and general industry sectors for robotic solutions. Nevertheless, lower capital spending for its key upstream energy end-markets and foreign exchange volatility might continue to dent financials.
Despite the negatives, we believe the company’s long-term prospects are stable. The company’s three major customers in utilities, industry, and transport & infrastructure are likely to drive growth. Apart from this, encouraging development in electricity value chain, rapid progress of Internet of things, services and people, and a surge in energy-efficient transport and infrastructure bode well.
Moreover, we look favourably upon ABB’s recent deal to acquire General Electric Company’s (GE - Free Report) global electrification solutions business. This acquisition will enable the integration of ABB’s Electrification Products division into GE Industrial Solutions, resulting in a unique global portfolio and a complete offering for North American as well as global customers. The deal has significant value creation potential and will expand the company’s installed base considerably.
Zacks Rank & Stock to Consider
ABB currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is A.O. Smith Corporation (AOS - Free Report) , holding a Zacks Rank #2 (Buy).
A.O. Smith has a decent earnings surprise history, with an average beat of 3.9% over the trailing four quarters, beating estimates thrice. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>