Earnings Preview: ABB Ltd.

ABB Ltd. ( ABB - Snapshot Report ) is slated to release its fourth-quarter 2011 earnings result on Thursday, February 16, 2012. The current Zacks Consensus Estimate for fourth-quarter earnings per share (EPS) is 43 cents, representing an annualized growth of 25.74%. For full-year 2011, the Zacks Consensus Estimate is $1.46, representing an annualized decline of 26.71%.

ABB Ltd.’s earnings were below the Zacks Consensus Estimate in the third quarter and first quarter of the year while was above estimate in the second quarter and in line in fourth-quarter 2010. The company’s average positive earnings surprise for the trailing four quarters was a negative 6.70%.

Third Quarter Highlights

ABB Ltd. reported third-quarter 2011 earnings per share of 34 cents, below the Zacks Consensus Estimate of 42 cents and in line with the prior-year earnings.

The company benefited in the quarter from its successful cost reduction efforts to mitigate price pressures as well as contributions from Baldor acquisition, which aided both ABB’s revenue and earnings growth.

Total revenue in the quarter increased 11% year over year in terms of local currency to $9.3 billion. Order level in the quarter increased by 12% in terms of local currency to $9.8 billion, with a backlog of $28.5 million. Order level in the quarter was aided by increased investment by the customers in electrical motors and robots.

Agreement of Estimate Revisions

In the last 30 days, of the analysts providing estimates on the stock, none changed their estimates for the fourth and third quarter. One analyst lowered its estimate for 2011 and 2012. There was no change in the last 7 days.

Magnitude of Estimate Revisions

In the last 30 days, estimate for the fourth quarter remained unchanged. In last 7 days, estimate for third quarter inched down from 35 cents to 34 cents, increased from $1.45 to $1.46 for 2011 and for 2012 lowered from $1.63 to $1.60.

Our Take

Business in the emerging markets are seen as prime benefactors for ABB. Rising demand levels in mature market also supports ABB’s future growth prospects. The company sees good prospect in energy-efficient power and automation technologies with the rising oil prices. Price increases initiated by the company to meet the rising raw material costs will lead to margin improvement. ABB focuses on attaining profitable growth opportunities by maintaining a competitive cost position, strong balance sheet, strong presence in global market and a leading technology.

However, certain macroeconomic concerns, especially public debt issues and low capital spending in Europe, have increased. More than 80% of the company's orders are derived from outside the US and therefore ABB is quite vulnerable to such macroeconomic weakness.

ABB Ltd. is a Zurich (Switzerland)based power and automation technology company. The company operates in approximately 100 countries, structuring its global organization into five regions: Europe, Americas, Asia, the Middle East and Africa. A major competitor of ABB Ltd. is Siemens AG ( SI - Analyst Report ) .

We maintain a Zacks #4 Rank (short-term Sell recommendation) on ABB Ltd.