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ABB Earnings & Revenues Miss Estimates in Q4, Orders Up Y/Y

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ABB Ltd. (ABB - Free Report) reported weaker-than-expected results in fourth-quarter 2018, wherein both earnings and revenues missed the Zacks Consensus Estimate.

Operational earnings in the quarter were 30 cents per share, which missed the Zacks Consensus Estimate of 40 cents by 25%. The bottom line also recorded a decline of 9.1% from the year-ago figure of 33 cents.

For 2018, the company’s operational earnings came in at $1.33 per share, up 6.4% on a year-over-year basis.

Inside the Headlines

ABB’s fourth-quarter revenues totaled $7,395 million, up 8.7% from the year-ago quarter figure. The upside can be attributed to impressive growth at the Robotics and Motion segment in addition to the Electrification Products segment’s solid momentum. Revenue growth was steady at the Industrial Automation segment as well.

On a comparable basis, the top line grew 5% year over year but lagged the Zacks Consensus Estimate of $10,170 million.

For 2018, ABB reported revenues of $27,662 million, up 9.8% on a year-over-year basis.

Total orders were $6,985 million, increasing 10% year over year. The metric also improved 7% on a comparable basis, backed by growth across most of regions and divisions, particularly in the United States and Brazil. While base orders grew 11%, large orders represented 5% of the company’s total orders. The order backlog at the quarter-end recorded an increase of 5% year over year.

On a geographic basis, businesses in most of the key operating regions were solid in the quarter under review. Revenues from European operations increased 5.5% year over year to $2,650 million. Orders in the region were solid and exhibited a 5% improvement. Meanwhile, revenues of $2,244 million from the Americas reflected an impressive growth of 27.6%. Orders from this region expanded 32%. Asia, Middle East and Africa segment generated revenues of $2,439 million, down 0.6% year over year. Orders in the reported quarter remained stable.

Book-to-bill ratio at the end of the fourth quarter was 0.94, up from 0.93 in the year-ago quarter. Notably, the metric at the end of 2018 was recorded at 1.03 compared with 0.99 in the previous year.

ABB Ltd Price, Consensus and EPS Surprise

ABB Ltd Price, Consensus and EPS Surprise | ABB Ltd Quote

Notably, ABB reports its revenues under the segments discussed below:

Electrification Products: Revenues at this segment totaled $3,320 million, increasing 23.1% year over year. Growth in short-cycle businesses drove the top line. Orders were up 23% to $3,139 million owing to the robust demand for products across regions.

Industrial Automation: Revenues at this segment were $1,938 million, declining 4% year over year. However, orders jumped 4% to $1,866 million. The uptick was owing to solid order activity for cruise ships and process industries including mining as well as pulp and paper.

Robotics and Motion: Revenues at this segment amounted to $2,341 million, which increased 7% from the year-ago figure. Orders of this segment rose 7% year over year to $2,175 million backed by robust orders across rail and automotive customers, and solid demand from process industries.

Operational EBITA Margin

In the reported quarter, ABB’s total cost of sales increased 10.5% to $5,308 million. It represented 71.8% of the fourth quarter’s revenues compared with 70.6% in the year-ago quarter. Gross margin was 28.2% compared with 29.4% a year ago. Selling, general and administrative expenses grew 12% and were 19.7% of total revenues versus 19.2% in fourth-quarter 2017.

Operational earnings before interest, taxes and amortization (EBITA) in the quarter under review decreased 12% to $584 million. Operational EBITA margin declined 180 basis points (bps) to 7.9%.

Balance Sheet and Cash Flow

Exiting 2018, ABB had cash and cash equivalents of $3,445 million, down from $4,526 million recorded at the end of 2017. Long-term debt decreased 1.4% year over year to $6,587 million.

In 2018, net cash generation from operating activities totaled $2,924 million, reflecting a decline of 23% from the year-ago quarter. Exiting 2018, the company’s free cash flow conversion to net income was 93%.

Outlook

Over the long haul, ABB believes that its major markets including utilities and transport & infrastructure hold great potential. With its leading digital offering ABB Ability, strong market presence as well as financial strength, the company expects to capitalize on these opportunities.

In addition, ABB believes that strengthening business in China and favorable operating conditions in the United States as well as overall growth in the global economy will provide a boost to its near-term performance.

However, foreign currency translation and GE Industrial Solutions integration might impact ABB’s results in the future.

Zacks Rank & Stocks to Consider

ABB currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are Zebra Technologies Corporation (ZBRA - Free Report) , Pioneer Power Solutions, Inc. and Brady Corporation (BRC - Free Report) . While Zebra Technologies sports a Zacks Rank #1 (Strong Buy), Pioneer Power Solutions and Brady carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zebra Technologies delivered average earnings surprise of 12.77% in the trailing four quarters.

Pioneer Power Solutions pulled off average positive earnings surprise of 208.48% in the trailing four quarters.

Brady delivered average earnings surprise of 5.71% in the trailing four quarters.

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