ABB CEO Pledges to Continue Revamp as Profit Beats Estimates

Friday, Jul 24, 2015

ABB Ltd. Chief Executive Officer Ulrich Spiesshofer pledged to continue revamping the portfolio of the Swiss engineering company as he comes under pressure from activist investors to rekindle growth and boost a stock price that’s languished this year.

“We will continue to change the center of gravity of ABB, we will derisk the portfolio, we will focus strongly on high-growth segments,” the CEO said on a conference call today. “We will also address the overall structure on an ongoing basis.”

ABB rose as much as 4.8 percent in Zurich after second-quarter profit beat analyst estimates. Still, with profit, sales and orders all dropping in the quarter, the CEO remains under pressure to revamp the company, particularly after activist investor Cevian Capital AB became the second-largest shareholder in the $49 billion company.

Cevian may push to separate it into power and automation businesses, a person familiar with the matter said this month. Analysts predict growth in automation to outpace the market for power equipment.

Net income declined 7.5 percent to $588 million, the Zurich-based company said in a statement on Thursday. That beat the $577 million average estimate of 16 analysts in a Bloomberg survey.

The profit margin increased, from 10.7 percent a year ago to 11.7 percent this year. Revenue fell 10 percent to $9.2 billion as both smaller and large orders dropped, driven by slowing demand from the oil and gas industry, China and the U.S.

Low Expectations

“Expectations were low going into the quarter,” Fredric Stahl, a Zurich-based UBS analyst, wrote in a note to clients. Operating profit was “ahead of consensus on the back of better profits in process automation and low voltage.”

Spiesshofer, who joined ABB following 14 years as a consultant with A.T. Kearney and Roland Berger advising automotive, oil, gas, consumer, telecommunications and utility companies, had cautioned that the company was facing a difficult second quarter as Chinese demand weakened. The company said today that orders held steady in Asia amid growth in India, Saudi Arabia and Australia. Orders also advanced in Europe, and fell in the Americas.

The power systems unit reported earnings before interest, taxes and appreciation of $42 million in the second quarter, building on a return to profitability in the previous three-month period. Spiesshofer had been working to turn around the power systems division since taking over in 2013.

The CEO is also reducing costs by scaling back the number of administrative regions and introducing a new information-technology system.

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