ABB Q4 Earnings and Revenues Miss, Proposes Dividend Hike - Analyst Blog

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Zurich, Switzerland-based ABB Ltd. ( ABB ) reported fourth-quarter 2014 operational earnings per share of 34 cents, in line with the year-ago quarter figure, but missed the Zacks Consensus Estimate of 35 cents by a whisker.

Earnings benefited from steady industrial demand for both power and automation solutions and high demand in the upstream oil and gas sector. However, negative impact of foreign exchange and commodity timing difference charges remained the headwinds.

For full-year 2014, operational earnings per share came in at $1.28, which was below the year-ago figure of $1.45.

Inside the Headlines

Quarterly revenues were down 3% year over year to $10,346 million in local currency and lagged the Zacks Consensus Estimate of $10,708 million. This was primarily due to a dip in revenues of power divisions. Service revenues represented 17% of the total revenue, which was up 1% year over year.

Total orders received dipped 1% year over year to $9,365 million, in local currency, due to negative impact of the US dollar. Base orders were up 2%, representing the sixth consecutive quarter of base order growth, driven by escalations across the company's business lines. However, large orders were lower in the quarter due to the timing effect.

Income from operations jumped 27% year over year to $1,049 million, driven by strong growth in the power automation segment. However, operational earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter totaled $1,380 million, down 3% year over year.

During the quarter, ABB completed its previously-announced divestiture of Full Service business for an undisclosed amount.

Also, as part of its 'Next Level strategy' announced in Sep 2014, ABB inked a joint venture deal with Hitachi Ltd. ( HTHIY ) to provide high voltage direct current system solutions in Japan.

Segment Details

Discrete Automation & Motion revenues increased 1% year over year (in local currency) to $2,583 million. Orders at the segment rose 1% year over year to $2,376 million.

Low Voltage Products revenues totaled $1,793 million (in local currency), down 5% on a year-over-year basis. The segment's orders amounted to $1,722 million, flat on a year-over-year basis.

Process Automation revenues remained flat on a year-over-year basis (in local currency) to $2,094 million. Order level increased 2% to $1,907 million.

Power Products revenues were $2,825 million, declining 2% on a year-over-year basis (in local currency). Nevertheless, orders at the segment increased 5% to $2,548 million.

Power Systems revenues were $1,965 million, down 9% on a year-over-year basis (in local currency). Also, order level slipped 14% to $1,437 million.

Liquidity & Cash Flows

ABB's cash flow from operations declined 12% (in US dollar) year over year to $1.8 billion during the quarter. Also, total debt dipped to $7.7 billion at the end of the fourth quarter of 2014 from $8 billion in 2013.

Dividends & Shares Repurchases

In the fourth quarter, ABB bought around 17 million shares under its share repurchase program, initiated in Sep 2014, for about $380 million.

This apart, ABB has proposed a dividend increase for the year 2014. The company plans to raise its dividend to 0.72 Swiss francs from 0.70 Swiss francs paid in 2013.

Our Take

Although ABB's quarterly earnings and revenue miss is unimpressive, the company is working towards achieving its financial targets for the 2015-2020 period. The strategy, incepted in Sep 2014, is built on the company's three focus areas of profitable growth, relentless execution and business-led collaboration. The company intends to drive profitability by shifting its focus toward high-growth end markets, enhancing competitiveness and lowering risk in business models. Most importantly, over the period 2015-2020, ABB projects to increase operational earnings per share by 10-15% compound annual growth rate and deliver attractive returns on investments.

ABB currently has a Zacks Rank #3 (Hold). Some better-ranked stocks that can be considered at present include Pioneer Power Solutions, Inc. ( PPSI ) and AO Smith Corp. ( AOS ). Both carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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