Higher profit although orders trimmed down

ABB Ltd (NYSE: ABB) reported its Q1FY17 results with revenues down by 2% YoY to %7.8 billion although orders slipped 9% to $8.4 billion from $9.25 billion. Base order growth was at 2%. Total orders reflect lower large contract awards; its book to bill ratio is 1.07x. The operational EBITA was at $943 million while operating EBIT margins was stable at 12.1%. The company, however, reported a splendid rise in net income, which grew 45% to $724 million from 500 million in the corresponding quarter. ABB EPS was at 0.34. The company generated cash flow from operating activities at $509 million, which reflects the delay in incentive payments caused by the South Korea case.

This is the second consecutive quarter of  ABB revenue growth. Underlying operational performance improved considering correction of insurance reserves. The management communicated that market is stabilizing in some process industries as well as early cycle businesses. China market was also positive. Order wise, large orders ($15 million and above)  were 34%  lower (50% in US dollars) due to fewer large order awards in Industrial automation and Power grids. Larger orders contribution reduced from 17% to 10% on YoY basis. Total service and software orders increased 7% compared with the corresponding quarter and represented 24% of total orders compared to 21% for the same period a year ago. The orders backlog at the end of March 2017 amounted to $23 billion, down 2% YoY.

Europe showed witnessed decent demand

Region wise, Europe witnessed positive demand on moderate overall growth. Base order demand was positive in Germany, Sweden, Spain and Finland while weak in Norway and Switzerland.  Demand in the America was positive, driven by increased demand for automation and energy efficiency. Base order improved 1% as increases in the US and Mexico however the demand decline came from Canada and Brazil. Demand in Middle East, Africa and Asia was mixed. India, South Korea and the UAS have seen positive order development , however, hina and Saudi Arabia reported dismal performance.

During the reported quarter, ABB closed high-voltage cable divestment while on April 4, 2017, the company announced acquisition of B&R. B&R acquisition would close ABB’s gap in machine and factory automation and will create a uniquely comprehensive automation portfolio for its global customers strengthening its number 2 position. Further, the company has commercially launched ABB Ability. The company has launched ABB Ability – its industry – leading digital offering and received positive customer response.

Outlook

Going forward, ABB is focused on its product portfolio and would to strengthen its position in higher growth segment as well as its competitiveness. The stock has consensus “Hold” rating.