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UPDATE 2-ABB still dogged by problems in power systems
July 23, 2014 / 5:55 AM / 3 years ago

UPDATE 2-ABB still dogged by problems in power systems

* Q1 net profit $636 mln vs $706 mln forecast in poll

* Charges at Power Systems unit continue to weigh

* Expects unit to break even this year

* Orders rise 13 pct, buoyed by large contracts

* Shares underperform sector index (Adds details on offshore wind, comments from CEO, analyst, shares)

By Caroline Copley

ZURICH, July 23 (Reuters) - Charges linked to costly delays to offshore wind and solar power projects pushed ABB’s second-quarter earnings below forecasts, sending its shares down 2 percent on Wednesday.

Like many of its rivals, the Swiss company is suffering from a lack of large orders for its power equipment and is working its way through a backlog of less profitable contracts.

Its business making subsea cables and power systems to connect renewable energy to the grid is losing money. Offshore wind farm projects, which offer some of the biggest returns, have been delayed by storms.

ABB said its net profit fell 17 percent in the quarter to $636 million, missing the average analyst forecast of $706 million in a Reuters poll.

ZKB analyst Richard Frei, who has a “market weight” rating on the stock, said the results were disappointing.

ABB said in April it would redouble efforts to turn the troubled Power Systems division around, which racked up its third consecutive loss in the second quarter, of $24 million.

The Zurich-based firm said investors should expect a weak performance in the business to weigh on results in coming quarters.

“This is not a short-term sprint. This is really a marathon run that will go a while,” Chief Executive Ulrich Spiesshofer told journalists.

But he suggested the efforts to fix the division, which include changes to management and its business model to reduce risk, should start to bear fruit in 2014.

“We still aim to get this business to profitability and we still aim to get this to break-even within this year,” he said.

Shares in ABB, which have dropped 13 percent so far this year, underperforming an index of European industrial companies , were down 1.7 percent at 20.70 Swiss francs by 0942 GMT.


ABB is not alone in its struggles. German rival Siemens has also racked up charges for similar delays in linking offshore wind farms to the grid.

Spiesshofer said most offshore wind projects should be completed by the end of 2015, while 90 percent of ABB’s projects to build and construct solar power plants should be finished by the end of this year.

The problems in Power Systems depressed the company’s operating profit margin, which fell to 13 percent, the lower end of its mid-term target of 13-19 percent.

Net profit included $333 million of depreciation and amortisation, of which $100 million was related to acquisitions including its purchase of Thomas & Betts and Baldor. The company booked restructuring charges of $40 million.

Signs are growing that large orders - contracts worth over $15 million - are starting to trickle in once again.

Orders grew 13 percent in the quarter to $10.6 billion, with roughly half of the rise attributable to large orders, including a $400 million deal to supply a power transmission link in eastern Canada.

This resulted in a positive book-to-bill ratio of 1.04, ABB said.

The Zurich-based company stuck to cautious guidance for its markets, saying uncertainty in some emerging economies may offset more encouraging signs in the United States and parts of Europe. (Reporting by Caroline Copley; editing by Michael Urquhart and Tom Pfeiffer)

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