ABB Underperforms Estimate

ABB Ltd. ( ABB - Snapshot Report ) reported fourth-quarter 2012 earnings per share of 26 cents, below the Zacks Consensus Estimate of 32 cents and the prior-year earnings of 36 cents.

Earnings per share for the full year 2012 decreased to $1.18 from $1.38 in 2011.

However, the company performed well during the year 2012, as its revenue and order trends increased. The cash flow position was also strong during the year.

Total Revenue

Total revenue in the quarter climbed 5% year over year in terms of local currency to $11 billion, aided by Automation and Power Products business. The acquisition of Thomas & Betts was a significant gain which helped ABB to derive substantial benefit from the growing North American market.

Segment Results

Power Products revenue was $3.1 billion, flat year over year. Order level was also flat during the quarter. Order level increased in the Americas and the Middle East and Africa while it was stable in Europe and declined in Asia.

Power Systems revenue was $2.3 billion, down 4% in terms of local currency. Orders in Power System were down 10%, due to a decline in large orders.

Discrete Automation & Motion revenue was $2.5 billion, up 7% in terms of local currency. Order level increased by 3%, driven by an increase in large orders in South America and Europe for robotics and power electronics equipment, which was partially offset by a decline in the order level in Asia.

Low Voltage Products revenue was $2.0 billion, up 46% in terms of local currency. Order increased by 54%, due to a rise in demand in northern Europe and China.

Process Automation revenue decreased 3% in local currency to $2.0 billion. Order level inched up 18%, aided by large project awards in oil and gas, mining and marine in the Middle East, the Americas and Asia.

Income and Expenses

The company achieved savings of approximately $320 million in the quarter. Costs associated with the program for full year were about $1.1 billion.

EBITDA in the quarter amounted to $1.4 billion, down 12% year over year.

Balance Sheet and Cash Flow

At the end of 2012, ABB had total debt of $10 billion compared with $4 billion at the end of 2011. Cash from operating activities reached a record level in the fourth quarter 2012, at $2.4 billion, driven by good working capital management. Free cash flow for the full year 2012 amounted to $2.6 billion, representing a conversion rate of 94% of net income.

Outlook

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

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.

ABB Ltd. currently has a Zacks #4 Rank (Sell). Its close rivals such as Tyco International ( TYC - Analyst Report ) has a Zacks Rank #1 (Strong Buy) and Siemens AG ( SI - Analyst Report ) has a Zacks Rank #2 (Buy).