ABB Q2 profit beats forecasts thanks to cost-cutting

ABB Q2 profit beats forecasts thanks to cost-cutting
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First Published: Thu, Jul 23 2009. 12 35 PM IST
Updated: Thu, Jul 23 2009. 12 35 PM IST
Zurich: Swiss engineering group ABB’s cost-cutting efforts limited a decline in profit in the second quarter, it reported on Thursday, but the group remained cautious for the rest of the year as customers hesitated over new spending on equipment.
Net profit slumped by 31% to $675 million, but this was well ahead of the average forecast of $592 million given by analysts in a Reuters poll as ABB has already saved $500 million this year.
“People did not expect ABB to have saved as much as they did in the first two quarters,” said Sal Oppenheim analyst Beat Fueglistaller.
The seller of power equipment to utilities as well as to oil and gas companies is looking to cut costs by $2 billion by the end of 2010.
Operating profit at the group fell 28% to $1.05 billion, but this was also ahead of expectations.
“Factories within some units, such as power products, were running at full capacity to execute order backlog and this supported the earnings before interest and tax (EBIT) figure,” a spokesman for the group said.
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ABB, which competes with Germany’s Siemens and France’s Areva in electricity transmission and distribution equipment, said it was hard to predict how demand would develop in the second half of 2009.
“Uncertainty surrounding economic recovery, the stability of raw material prices and the availability of project funding continue to influence the timing of many power investment decisions,” the group said.
The group, which is the world’s biggest supplier of transformers for electrical grids, saw its second-quarter orders tumble 35% to $7.3 billion, roughly in line with expectations, while sales fell 12% to $7.9 billion.
ABB is expected to benefit from government stimulus packages designed to counter the slowdown, but the group said it was unable to forecast when these programmes would start to help ABB or when the availability of funding would improve.
The group confirmed its targets for the 2007-2011 period, excluding its Robotics unit, which needs further restructuring.
ABB is aiming for revenue growth of between 8% and 11% and for an earnings before interest and tax (EBIT) margin of between 11% and 16% in the mid-term.
Longer term, ABB is also expected to benefit from the replacement of ageing power systems in Europe and the United States as well as from investment in power infrastructure in India and China.
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First Published: Thu, Jul 23 2009. 12 35 PM IST
More Topics: Company Results | ABB | Power | Siemens | Areva |