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UPDATE 2-ABB lowers mid-term sales target on sluggish economy
February 13, 2014 / 5:50 AM / 4 years ago

UPDATE 2-ABB lowers mid-term sales target on sluggish economy

* Q4 orders fall 5 pct to $10 bln vs $9.9 bln f‘cast

* Net profit of $525 mln hit by charges

* Rising early-cycle demand, offset by large order delays

* Revises revenue growth to 4-5 pct for 2011-2015 period

* Shares indicated down 2.2 pct (Adds details, shares, analyst, CEO quote)

By Caroline Copley

ZURICH, Feb 13 (Reuters) - Swiss engineering group ABB lowered its target for mid-term sales growth on Thursday, blaming a slower-than-expected economic recovery and weaker capital spending by its customers.

The company, which makes products ranging from power grids for utilities to industrial robots, said sales growth this year would be challenging as uncertainty in emerging markets, like China, offset growth in the United States and parts of Europe.

Like rivals, Germany’s Siemens and Schneider Electric of France, ABB has grappled with a dearth of large orders as a weak global economy saps demand for capital equipment and prompts clients to delay investments.

ABB said it had seen a pick-up in demand in its early cycle businesses, which make products such as circuit breakers, switches and industrial motors, in the fourth-quarter, but that spending remained weak from utility and mining companies.

“The early cycle shows some signals in certain markets of a pick-up, which is encouraging. However, it’s still too early to call it an upswing overall,” Chief Executive Ulrich Spiesshofer said in a video message.

Delays to offshore wind projects have also weighed on its business, prompting ABB to book a $260 million charge last month due to winter storms in the North Sea and restructuring costs at its power systems unit.

ABB now expects to increase overall sales at a compound annual growth rate of 4-5 percent for the 2011-2015 period. It had previously guided for a growth rate of 7-10 percent including some acquisitions.

Helvea analyst Stefan Gaechter said the revision to ABB’s target was long overdue because of subdued growth since 2011.

Shares in ABB, which have fallen over 7 percent since it hit a 5-1/2 year high on Jan. 20, were indicated down 2.2 percent, according to pre-market indications by bank Julius Baer.

The stock trades at 15.4 times forward earnings at a premium to Siemens’ 13.2 times and Schneider’s 14.9 times.


Orders fell 5 percent in the fourth-quarter to $10 billion, ahead of a forecast for $9.91 billion in a Reuters poll, hit by a 36 percent drop in large orders above $15 million as customers postponed infrastructure spending.

Weakness in the oil and gas and mining industries has also weighed on orders at ABB, with companies like Norway’s Statoil and Chesapeake Energy Corp cutting capital spending to focus on improving returns.

Spiesshofer, who took the helm in September, said the group would focus on organic growth, cutting costs and improving the returns in its power systems business this year. The company has pledged to be more selective on projects to try to make the division more profitable.

After shelling out more than $10 billion on acquisitions under former CEO Joe Hogan, Spiesshofer has also said he is open to pruning the group’s portfolio.

The company is looking to sell off non-core assets from Thomas & Betts Corp, the U.S. electrical components maker it acquired two years ago for $3.9 billion, and Power-One Inc, the U.S. solar energy company it bought for about $1 billion last year, sources told Reuters.

Net profit dropped 13 percent to $525 million, hit by previously flagged charges. Analysts in a Reuters poll had expected net profit of $538 million on average.

Revenues rose 3 percent to $11.37 billion, in line with forecasts.

The company said it expected earnings per share growth at a compound annual growth rate towards the lower end of its target range for 10-15 percent. It confirmed its other mid-term targets.

ABB proposed a dividend of 0.70 Swiss francs per share for 2013, compared to 0.68 francs last year. (Reporting by Caroline Copley, editing by Elizabeth Piper)

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