) reported first-quarter 2014 earnings per share of 24 cents,
marking a decline of 17.2% from the prior-year figure of 29
cents. The quarterly results included the effect of additional
charges from certain projects in the Power Systems (PS)
Total Revenue & Orders
Revenues for the first quarter were down 1% in local currency
on a lower opening order backlog compared with the prior-year
period and execution issues in the Power Systems division.
Service revenues represented 16% of total revenues, which were
flat year over year. Revenues fell short of the Zacks Consensus
Estimate of $11.5 billion.
Total orders received during the quarter were steady. Base
orders (order value below $15 million) were up 3% in local
currency driven by growth in most of ABB's early-cycle product
businesses, primarily in the Discrete Automation and Motion and
Low Voltage Products divisions. However, this was offset by a 12%
decrease in large orders (order value above $15 million), mainly
in the Process Automation and Power Products businesses due to
continued delay of customer capital investments in grid
infrastructure and greenfield industrial development
Service orders declined 6% in local currency due to the ABB's
exit from a large full-service contract in Finland.
Power Products revenues were $2.4 billion, declining 2% in
terms of local currency. This was due to lower opening of the
order backlog. Orders for the segment also declined 3% in local
currency to $2.7 billion as the growth from the increasing
industrial and power distribution demand was fully offset by
selective investments by utilities in power transmission.
Power Systems revenues were $1.6 billion, down 19% in terms of
local currency. Revenues declined due to lower opening of the
order backlog and execution delays in selected projects. Orders
in Power Systems fell 6% in local currency to $1.5 billion.
Although the large orders were at the same level as the previous
year, Utilities were cautious, in their power transmission
investments and ABB's selectivity focus on margin and
pull-through also continued which impacted the order growth.
Discrete Automation & Motion revenues were $2.4 billion,
up 3% over the previous year's revenues of $2.3 billion. The rise
was due to execution of the order backlog and increased demand
for early-cycle products which fully offset the unfavorable
impact of a lower opening order backlog in large motors and
medium-voltage drives compared with the same quarter in 2013.
Service revenues increased in double-digits during the first
quarter. Order level increased 14% to $2.8 billion. Orders during
the quarter were driven mainly by early-cycle businesses serving
general industry and discrete manufacturing which continued to
grow in the quarter, compensating lower demand for products used
in later-cycle process industries. Orders also benefited from a
large rail order in Sweden and from organic growth initiatives
across the portfolio, especially in service.
Low Voltage Productsr evenues were $1.9 billion, up 7% in
terms of local currency. The segment gained from revenue increase
across all regions in the quarter as well as execution of system
orders from the backlog. Orders grew 3% in the quarter, driven by
a positive business environment in early-cycle industrial and
building sectors in most regions, as well as measures to increase
the penetration in a number of key markets.
Process Automation revenues increased 1% in local currency to
$1.9 billion. The company's performance reflected a strong
backlog execution in its marine and mining businesses. Order
level decreased 17% in local currency to $2.0 billion. The
decline was due to fewer large orders in the mining sector
compared with the prior-year period.
Income and Expenses
Income from operations declined to $855 million from $1.0
billion in the prior year. Operational earnings before interest,
taxes, depreciation and amortization (EBITDA) in the quarter
totaled $1.2 billion, down 13% year over year.
Balance Sheet and Cash Flow
Exiting the first quarter, ABB reported cash and cash
equivalents of $6.4 billion versus $5.4 billion in the prior-year
period. However, net debt increased to $1.8 billion from $1.5
billion at the end of 2013.
Step Change Program
Disappointed by the dismal performance of its Power Systems
division, ABB announced the 'Step Change Program' for the Power
Systems division to revive its performance.
ABB maintains a positive long-term outlook. The company aims
to improve its efficiency by focusing on cash flow generation,
cost containment and stabilizing its PS business in 2014.
Moreover, rising investments in grid upgrades and the tendency of
industries to spend more on automation solutions to increase
energy efficiency and productivity bode well for the company.
However, short-term uncertainties continue to linger along with
the persisting macroeconomic volatility.
ABB currently has a Zacks Rank #4 (Sell). Some better-ranked
stocks in the sector are
NRG Yield, Inc.
AGL Resources Inc.
Chesapeake Utilities Corp.
). While NRG and AGL carry Zacks Rank #1 (Strong Buy), Chesapeake
has a Zacks Rank #2 (Buy).
ABB LTD-ADR (ABB): Free Stock Analysis Report
CHESAPEAKE UTIL (CPK): Free Stock Analysis
AGL RESOURCES (GAS): Free Stock Analysis
NRG YIELD INC-A (NYLD): Free Stock Analysis
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