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ABB Underperforms Estimate

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ABB Ltd. (ABB - Free Report) reported third-quarter 2012 earnings per share of 33 cents, below the Zacks Consensus Estimate and prior-year earnings of 34 cents.

Despite the prevailing difficult economic conditions, the company continued to receive orders and reported an increased revenue.

Total Revenue

Total revenue in the quarter climbed 10% year over year in terms of local currency to $9.7 billion. The company’s better access to North American markets with recent acquisitions added to growth.  Order level in the quarter was flat in terms of local currency at $9.3 billion, with a backlog of $29.2 million. Order level in the quarter was aided by higher demand in industries for Automation solutions.

Segment Results

Power Products revenue was $2.5 billion, flat in terms of local currency. Order rate decreased by 6%, due to the timing of certain projects received. Decline in utility activity in power distribution also affected the order levels.

Power Systems revenue was $1.9 billion, up 11% in terms of local currency. Orders in Power System were down 27%. Orders of 2011 included a $1-billion offshore wind order in Germany.

Discrete Automation& Motion revenue was $2.3 billion, up 5% in terms of local currency. Order level increased by 1%, driven by large orders received from the utility, traction and automotive sectors while partially offset by lower demand from the wind and solar energy sectors. 

Low Voltage Products revenue was $1.9 billion, up 44% in terms of local currency. Order increased by 45%, aided by the contribution from the acquisition of Thomas & Betts.

Process Automation revenue increased by3% in local currency to $1.9 billion. Order level inched down 3%, led by a decrease in large orders in oil and gas sectors.

Income and Expenses

The company achieved savings of approximately $280 million in the quarter. Costs associated with the program in the quarter were about $20 million. About 45% of cost savings in the quarter came from global sourcing initiatives, 50% from operational excellence projects and about 5% from footprint changes.

EBITDA in the quarter amounted to $1.5 billion, down 6% year over year.

Balance Sheet and Cash Flow

At the end of the quarter, ABB had cash and cash equivalents of $4.6 billion, down from $4.8 billion at the end of 2011. Long-term debt was $7.1 billion and shareholders equity was $17.1 billion. Cash from operating activities was $768 million.


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 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, the Americas, Asia, the Middle East and Africa. A major competitor of ABB Ltd. is Siemens AG .

We maintain a Zacks #3 Rank (short-term Hold recommendation) on ABB Ltd.

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