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UPDATE 2-ABB to step up cost cuts after profit miss
April 24, 2013 / 4:56 AM / 5 years ago

UPDATE 2-ABB to step up cost cuts after profit miss

* Q1 net profit $664 mln vs poll f‘cast of $710 mln

* CEO cautious over 2013 outlook

* Cost savings boost operating margin

* Shares rise 2.9 pct, outperform sector (Recasts, adds CEO quotes, margin, shares)

By Caroline Copley

ZURICH, April 24 (Reuters) - Swiss industrial group ABB will step up cost-cutting measures to boost profitability in what it expects to be a tough second half of the year after first-quarter profit fell short of expectations.

The company was hit by slowing growth in the United States and hesitant spending by European clients, but Chief Executive Joe Hogan boosted margins with $260 million of savings through sourcing and productivity improvements.

“What we’re positioning for is a very flat kind of 2013 versus 2012,” Hogan said in a video message.

“We’re ready for a better second half of 2013, but we certainly aren’t spending in anticipation of that.”

In the results statement, Hogan said that ABB will “continue to focus on the cost-growth balance” for the rest of the year.

His comments echo German rival Siemens, which this month said that it had yet to see signs of a second-half economic upswing.

Manufacturing studies published on Tuesday also fanned concern that the global economy is losing steam as growth in Chinese factories slowed to a crawl, reflecting weak demand from a fragile U.S. economy and a euro zone mired in recession.

ABB, the world’s biggest supplier of industrial motors and power grids, said first-quarter net profit fell 3 percent to $664 million, hurt by softer demand for early cycle products such as drives and motors.

Analysts in a Reuters poll had forecast net profit of $710 million.

The company reported first-quarter orders up 2 percent to $10.49 billion, buoyed by electrical-components maker Thomas & Betts, which ABB bought in 2012 for $3.9 billion to boost exposure to North America. Excluding new businesses, orders were down 4 percent.

Hogan’s tight grip on costs, however, increased ABB’s operating margin by 1.1 basis points to 15 percent in spite of the tough environment, helping the shares to shrug off the profit miss.

The shares, which trade at 13.9 times estimated earnings over the next 12 months and at a premium to Siemens’s 11.3 times, were up 2.9 percent at 21.09 Swiss francs by 1045 GMT.

Since taking the helm in 2008, Hogan has also loosened ABB’s purse strings for acquisitions and stocked up on businesses with new technologies and fast-growing markets.

On Monday ABB said it would buy U.S solar energy company Power One Inc for $1 billion and said it expects the takeover to increase earnings per share from the first year of ownership.

Editing by David Goodman

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