ABB Earnings & Revenues Miss Estimates in Q3, Orders Up Y/Y
ABB Ltd. ABB reported weaker-than-expected results in third-quarter 2018 wherein both earnings and revenues missed estimates.
The company’s operational earnings in the reported quarter were 34 cents per share, missing the Zacks Consensus Estimate of 38 cents by 10.5%. Notably, the bottom line matched with the year-ago tally.
Revenues Expand on Solid Orders
In the reported quarter, ABB’s revenues totaled $9,257 million, up 6.1% from the year-ago quarter on the back of impressive growth in Robotics and Motion segment in addition to strong momentum in Electrification Products segment. Also, revenues were steady in Power Grids segment.
ABB Ltd Price, Consensus and EPS Surprise
ABB Ltd Price, Consensus and EPS Surprise | ABB Ltd Quote
The top line grew 3% year over year but lagged the Zacks Consensus Estimate of $9,456 million.
Total orders were $8,941 million, increasing 10% year over year. The metric also improved 9% on a comparable basis, backed by growth across all regions and divisions. While base orders grew 12%, large orders represented 7% of the company’s total orders. The order backlog at the quarter-end was flat year over year.
On a geographic basis, businesses in all the key operating regions were solid in the quarter under review. Revenues from European operations increased 2% year over year to $3,123 million. Orders in the region were solid and exhibited growth of 10%. Revenues of $2,882 million from the Americas reflected impressive growth of 20%. Orders from this region expanded 23%. Asia, Middle East and Africa segment generated revenues of $3,252 million, relatively flat year over year. Orders in the reported quarter fell 1% .
Book-to-bill ratio at the end of the third quarter was 0.97, up from 0.94 in the year-ago quarter.
ABB reports its revenues under the segments discussed below:
Power Grids: Revenues in the reported quarter decreased 4.6% year over year to $2,336 million. The weakness was primarily due to the reduced opening order backlog. Orders increased 7% to $2,207 million, mainly owing to increase inthird-party base orders. Also, the company’s ABB Ability solutions and Power Up strategies were advantageous.
Electrification Products: Revenues totaled $3,199 million, increasing 23.2% year over year. Growth in product revenues drove the top line. Orders were up 26% to $3,215 million, owing to the strong demand across all regions.
Industrial Automation: Revenues were $1,758 million, declining 1.2% year over year. Orders jumped 3% to $1,643 million. The uptick was owing to investments in specialty marine vessel solutions and solid demand for ABB Ability enabled automation and control solutions.
Robotics and Motion: Revenues of $2,281 million increased 3.8% from the year-ago figure. Sales grew steadily on improving businesses in all geographical regions. Orders of this segment moved up 12% year over year to $2,276 million backed by reported growth across all businesses and regions.
Operational EBITA Margin
In the reported quarter, ABB’s total cost of sales increased 8.6% to $6,590 million. It represented 71.2% of the third quarter’s revenues compared with 69.6% in the year-ago quarter. Gross margin was 28.8% compared with 30.4% a year ago. Selling, general and administrative expenses grew 10.8% and were 16.8% of total revenues versus 16.1% in third-quarter 2017.
Operational earnings before interest, taxes and amortization (EBITA) in the quarter under review decreased 0.5% to $1,118 million. Operational EBITA margin declined 80 basis points (bps) to 12.1%.
Balance Sheet and Cash Flow
Exiting the third quarter of 2018, ABB had cash and cash equivalents of $2,604 million, down from $3,283 million recorded at the end of the last reported quarter. Long-term debt decreased 0.6% sequentially to $6,619 million.
In the reported quarter, net cash generation from operating activities totaled $565 million, reflecting a decline of 40.8% from the year-ago quarter. Capital spending on the purchase of property, plant, equipment and intangible assets was $239 million, higher than $203 million used in third-quarter 2017. Exiting the quarter under review, the company’s free cash flow conversion to net income was 88%.
Next Level Strategy
ABB is well into the third stage of its Next Level Strategy that focuses on three areas — profitable growth, relentless execution and business-led collaboration. The third stage calls for the restructuring of the company’s divisions into four market-leading entrepreneurial businesses, unlocking its full digital potential, accelerating momentum in operational excellence and enhancing the company’s brand.
Growing acceptance of the ABB Ability solutions underpins the company’s profitable growth strategy. During the reported quarter, its Ability solutions were recognized as leader in Distributed Control Systems and Enterprise Asset Management software.
It also completed acquiring Intrion in September. The transaction is likely to improve the company’s logistics robotics offering to gain a stronger foothold in the market. Also, in August the company sold its terminal block business as part of its ongoing active portfolio management initiative.
Notably, ABB completed the buyout of GE Industrial Solutions during the second quarter. The company predicts negative 30 bps and 130 bps impacts, respectively, on the company’s operating EBITA margin and Electrification Products segment’s operating EBITA margin in full-year 2018.
The company’s productivity-enhancement initiatives and cost-saving actions have been beneficial over time.
Under its business-led collaboration strategy, ABB transferred its turnkey AC Substation business to Linxon. Also, the company is focused on strengthening its brand image.
Over the long haul, ABB believes that all its three major markets — utilities, industry and transport & infrastructure — hold great potential. The company expects to capitalize on these opportunities with its leading digital offering ABB Ability, strong market presence as well as financial strength.
Additionally, the company believes that strengthening business in China, favorable operating conditions in the United States and Europe, and overall growth in the global economy will benefit its near-term performance. Also, foreign currency translation and oil prices might impact results in the future.
Zacks Rank & Stocks to Consider
ABB currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same space are Enersys ENS, Eaton Corporation, PLC ETN and Kadant Inc KAI. While Enersys sports a Zacks Rank #1 (Strong Buy), Eaton and Kadant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enersys surpassed estimates thrice in the trailing four quarters with an average beat of 2.86%.
Eaton exceeded estimates thrice in the trailing four quarters with an average beat of 2.87%.
Kadant surpassed estimates in each of the trailing four quarters with an average beat of 13.95%.
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