ABB Benefits From End Market Strength, Headwinds Remain
ABB Ltd. ABB has been benefiting from strength in its end markets, including oil and gas, buildings, mining & metals, automotive, marine & ports, renewables, food and beverage and power distribution utilities. Growth across the company’s short-cycle businesses and improvement in service and process-related businesses have proven beneficial. Also, growth in the company’s orders and a strong backlog level are expected to be favorable. Exiting the first quarter of 2022, the company’s order backlog totaled $18.9 billion.
ABB intends to strengthen its businesses through the acquisition of assets. In January 2022, it acquired InCharge Energy, which has been boosting its E-mobility business in North America. Also, the buyout of Codian Robotics B.V. in October 2020 helped it expand the technological expertise and product portfolio of its Robotics & Discrete Automation segment. This apart, ABB’s organic growth investments and diligent cost-control initiatives might improve its competency over time.
It remains committed to rewarding its shareholders through dividend payments and share repurchases. In first-quarter 2022, ABB paid out dividends worth $889 million and repurchased shares worth $1,561 million. Also, it launched a share buyback program in April 2022, which is expected to remain operational until its 2023 Annual General Meeting. Through this program, ABB intends to buy back shares worth up to $3 billion.
However, the company has been witnessing challenges related to supply chain, logistics and availability of labor. In the first quarter, ABB’s top line was affected by supply-chain constraints due to delays in customer delivery. These issues are likely to continue affecting its performance in the near term.
ABB’s high capital expenditures might also adversely impact its profitability in the quarters ahead. For 2022, it expects to incur capital expenditures of $750 million, with $200 million expected to be recorded in the second quarter.
Its global presence exposes it to various environmental laws and regulations in the countries where it operates. Also, the entity remains vulnerable to foreign currency woes. In the quarters ahead, a stronger U.S. dollar might affect its overseas business performance.
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In the past three months, this Zacks Rank #3 (Hold) stock has lost 20.6% compared with the industry’s decline of 17.7%.
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