UPDATE 3-ABB redoubles work to fix power systems unit after profits drop

Tue Apr 29, 2014 6:13am EDT

* Second overhaul at the power systems unit in as many years

* Charges for offshore wind and solar power projects weigh

* Net profit falls by almost a fifth to $544 mln

* CEO declines to say whether interested in Alstom

* Shares drop 7 pct, underpeform sector (Adds CEO comment on Alstom bid battle, large orders, updates shares)

By Caroline Copley

ZURICH, April 29 (Reuters) - Swiss engineering group ABB said it would intensify work to overhaul its power systems unit after posting an unexpected fall in first-quarter profit because of the unit's weak orders and costly delays to wind and solar power projects.

Shares in the Zurich-based firm dropped seven percent after more than a year's work to turn around its least profitable division failed to yield results. First-quarter net profit fell 18 percent to $544 million, missing the average forecast of $726 million in a Reuters poll of 17 analysts.

ABB will now stop bidding for certain new solar power generation projects, review its business model for offshore wind power connections and change some management. This comes on top of measures in late 2012 to be more selective about projects.

External experts will also be called in to help restructure the unit, which is still incurring charges for failing to meet deadlines on some offshore wind and solar power projects - power equipment takes years to install and usually comes with hefty downpayments - and is facing tough price competition in Asia.

"The Power Systems situation is very disappointing. We are not where we want to be and need to address this," Chief Executive Ulrich Spiesshofer said in a video message.

Weak spending by utility customers and delays to projects have also dogged ABB's power rivals Siemens and Alstom, and contributed to an industry-wide review of its business that in turn has sparked a bid battle between General Electric and Siemens for Alstom's power turbines business.

ABB, which competes with Alstom in the areas of transformers, high-voltage products, substations and network management systems, declined to comment on whether it would also make an offer to its French rival.

"We are observing the Alstom situation at the moment and at the time we have something to say about it we will come out with some comment," Spiesshofer told reporters.

He said ABB remained committed to its power systems business and would "fix it to get it back to prosperity." The company has not set a timeframe for the revamp and said it was not clear whether they would need to make further provisions.

The division, which makes subsea cable systems and power links to connect renewable energy to the grid, was the only one of Swiss firm's five units to post a loss in the first quarter.

Helvea analyst Stefan Gaechter said it was disappointing that the transformation of the division will take longer than originally planned and said he expected consensus earnings figures to be cut on the back of the results.

ZKB analyst Richard Frei lowered his rating on the company to "market weight" from "overweight."

Shares in ABB tumbled to the bottom of the Swiss blue-chip index, down 7 percent at 21.42 francs by 0854 GMT.

SLUGGISH LARGE ORDERS

Overcapacity in the mining industry and uncertainty over renewable energy policy in Europe has also delayed capital spending by mining and utility customers and depressed large orders - contracts worth over $15 million - at ABB.

Orders dipped 1 percent in the first quarter to $10.36 billion, just shy of the average forecast, as large orders fell compared with the previous year.

Spiesshofer said he expected large orders to remain sluggish in the short-term but was "quite optimistic" in the medium to long-term.

In February, the company lowered its target for mid-term sales growth and said revenue growth would be challenging this year due to a smaller backlog of orders at the end of 2013.

Revenues fell 3 percent to $9.47 billion, compared to the average analyst forecast for $9.76 billion.

ABB stuck to its cautious outlook, saying uncertainty in emerging markets like China may offset more encouraging signs in the United States and parts of Europe.

"It's too early to call the world an upswing altogether," Spiesshofer said. "We have to manage costs very carefully and not get carried away with some signals already because it's still a very uncertain world out there." (Editing by Sophie Walker)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.