ABB Quarterly Profit Beats Estimates on Energy Orders
By Antonio Ligi
April 26 (Bloomberg) -- ABB Ltd., the world's biggest builder of electricity networks, said first-quarter profit more than doubled, beating analyst estimates, as utilities in China and Europe upgraded power grids. Shares of the Swiss company climbed to their highest in almost six years.
Net income surged to $537 million from $204 million a year earlier, the Zurich-based company said today. Analysts surveyed by Bloomberg predicted $429 million. Revenue gained 21 percent to $6.2 billion, with quarterly orders also exceeding forecasts.
``These results are sensational,'' said Mark Diethelm, an analyst at Zuercher Kantonalbank in Zurich. ``In Europe, the really big infrastructure upgrades have yet to come.''
ABB's markets will remain ``positive'' in 2007, though there may be some moderation in the flow of new work, Chief Executive Officer Fred Kindle said. Investment in power grids in Europe and Asia helped drive up first-quarter orders 26 percent. China alone will spend about $90 billion on power grids over the next five years, according to a Deutsche Bank research note.
Shares of ABB had advanced 1.75 Swiss francs, or 7.6 percent, to 24.9 francs, and traded at 24.2 francs as of 11:21 a.m. local time. They have advanced 11 percent this year, compared with a 20 percent gain at Munich-based Siemens AG, Europe's biggest engineer, and 27 percent at Schneider Electric SA of France, the world's largest maker of circuit breakers. ABB is valued at 52.8 billion francs ($44 billion).
Formed in 1988 through the merger of BBC Brown Boveri of Switzerland and ASEA AB of Sweden, ABB also manufactures robots used for everything from the packaging of cookies to the milking of cows. It this week announced a $40 million order for equipment to upgrade the electricity grid of Sao Paulo state in Brazil.
Matching Peers
The Swiss company, which has 108,000 employees in 108 countries, is the latest European engineer to report earnings ahead of analyst estimates. Schneider Electric reported a 22 percent jump in quarterly profit. Siemens' fiscal second-quarter profit soared 36 percent. Growth in the automation and controls industry is spurring engineering stocks including those of Invensys Plc, which gained 5.1 percent today.
ABB's stock tumbled on Feb. 15, when profit missed estimates for the first time since Kindle took charge in 2005. Larger, less profitable orders narrowed the company's operating profit margin by one percentage point to 10.4 percent and net income fell just shy of predictions.
Operating profit, or earnings before interest and taxes, increased 67 percent to $822 million in the first quarter, while orders grew to $8.6 billion. ABB's operating margin as a percentage of sales was 13.2 percent, ahead of its 10 percent target set for 2009.
New Targets
```In light of the market's disappointment at fourth-quarter margins, this was the key issue,'' Julian Mitchell, an analyst at Credit Suisse in London, said in a research note. ``Margins rebounded even more than we had anticipated.''
Kindle said there's no reason why the level of profitability seen in the first quarter can't be repeated. ABB did a ``bad job'' when planning targets through 2009 as most goals were achieved in 2006, the CEO said Feb. 15. The company underestimated the strength of the market as well as the swiftness it could carry out internal changes.
ABB is now putting together new medium-term targets. The goals will be put before the board in the summer and announced to the market in early September, Chief Financial Officer Michel Demare said on a conference call.
Quarterly profit was equal to $0.25 a share, up from $0.1.
Acquisitions remain on the agenda, even though prices are ``high,'' Kindle, 48, said. The Swiss company will seek targets in power or in automation products, a market that offers the most opportunities. Geographically, the U.S. is a more interesting hunting ground than Europe, he said.
ABB said it's currently in talks with potential buyers of its gas and refinery-equipment division Lummus Global and a deal should be completed within the next 12 months.
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