| Abstract: | Orders from emerging markets eclipse those of more established geographies, although problems flare as Libya detains Swiss employee. |
| Keywords: | ABB profits, ABB earnings |
Swiss automation and engineering giant ABB defied the global economic quagmire in the second quarter ended June 30, 2008, reporting a 34% jump in net profit to $975 million on a 27% leap in revenue to $9 billion. Translated into local currencies, revenue growth was still in the double digits, but a more modest 15%, the company said.
ABB also reported that, for the first time, orders from emerging markets, such as China, India, and the Middle East, exceeded those from mature market countries, bringing in 51% of the total. But in a reminder that expansion comes with risks, the company on Tuesday temporarily closed its office in Tripoli after Libyan authorities detained a Swiss ABB employee as tensions grew over the arrest in Switzerland of one of Muammar Gaddafi's sons. ABB is working with the Swiss Ministry of Foreign Affairs to resolve the matter, the company said.
On a conference call to discuss the quarterly results, Interim CEO Michel Demaré attributed the overall financial gains, in part, to global demand for products that improve energy efficiencies in the face of surging oil and gas prices. "High energy costs continue to drive demand," Demaré said.
He also pointed to operational improvements within ABB, including more reliance on local sources of materials and human resources, such as castings, steel structures, and engineers. Those improvements helped ABB improve its EBIT margin to 16.1% from 14.4%.
Demaré said ABB has been able to pass along to customers significant increases in its raw material costs. The cost of copper has jumped 20% since the beginning of the year, for instance, but Demaré said he expects customers will continue to absorb that.
Revenue from automation products grew 28% year over year to $2.75 billion, 15% growth in local currency. Process automation revenue grew to $2.06 billion, an increase of 30% in dollars and 16% on a local currency basis. Power products jumped 25% to $3 billion, or 14% growth in local currency, while power systems grew 34% (21% in local currency), to $1.7 billion, and robotics gained to $417 million, a jump of 23% and 10%, respectively.
For the company, orders grew 31% to a single-quarter record of $11.3 billion, marking a 19% increase in local currency.
Demaré said he expects continued strong demand, including in emerging markets. He noted that there are four countries where, for reasons of risk, the company will not do business — North Korea, Myanmar, Sudan, and Iran. Demaré declined to provide more details on the Libyan situation.
The company cautioned in a statement that various ongoing government agency investigations of its practices "could have a material impact" on financial matters. In the United States, the Securities and Exchange Commission and the Department of Justice are probing suspect payments. In other regions, ABB faces antitrust investigations, including one by the European Commission.
The financial results marked ABB's 10th consecutive quarter of double-digit growth. The second quarter was the first full reporting period for ABB since CFO Demaré took over as acting CEO following the surprise departure of Fred Kindle in February. The financial report follows ABB's announcement last week that it has reached outside the company to tap GE Healthcare CEO Joseph Hogan as its new permanent CEO.
In response to a question from Managing Automation, Demaré said he had hoped that ABB would appoint him as permanent CEO, but he is looking forward to working with Hogan. "I'm confident that Joe and I will complement each other very well," he said, noting that Hogan will "enrich ABB."
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