Driven by strong order growth in its Automation Products and Process Automation divisions, ABB Inc. yesterday reported third-quarter net income of $397 million, nearly double the $188 million earned in the like period last year.
Revenues in the period edged up 7% to $6 billion from the $5.6 billion posted in the year-earlier period. Earnings before interest and taxes (EBIT) came in at $686 million, up 48% from the same period last year.
Large orders in the company's automation products and process automation units -- those worth $15 million or more -- were up 31% from the corresponding period of 2005, ABB said. This offset a revenue decline in the Zurich-based company's Power Systems and Robotics divisions, ABB noted.
"A massive increase in process automation activities offset a negative impact of orders in the power [systems] business division," said ABB President and CEO Fred Kindle during yesterday's teleconference briefing with financial analysts.
Revenue was up 18% year over year in the Automation Products division to $1.7 billion, contributing $270 million in EBIT. The Process Automation division saw a 12% increase in revenue to $1.3 billion, contributing $139 million in EBIT.
Meanwhile, orders declined 13% from the like period last year in ABB's Power Systems division, a unit separate from the company's Power Products division, which itself experienced a 24% increase in orders. In addition, revenue in the company's Robotics group declined 34% year over year, reflective of weak demand in the automotive market, officials said.
The U.S. automotive market is especially soft, but ABB is not taking too much of a hit, because, Kindle told analysts on an earnings conference call, "Historically, [North America] has not been the strongest point in regards to market position for ABB. By the same token, that relative weakness is playing to our advantage as we are not as close to the market weakness in North America as some of our competitors are."
Competitors, like Rockwell Automation, which is rooted in the U.S. automotive market, are feeling the repercussions of the industry's structural problems. Nevertheless, industry analysts are putting process automation giants like ABB on alert, noting that Rockwell Automation is finally delivering on promises to penetrate process businesses, including oil and gas, which is a key ABB industry segment.
"ABB is the number-one DCS supplier worldwide," said Larry O'Brien, an analyst at ARC Advisory Group, in an interview. "And Rockwell is the new kid on the block competing against these DCS suppliers. Are they going to take over ABB's [market-leading] position next year? No. But they are definitely on the radar screen of all major DCS competitors now."
As a result, ABB has to keep hammering away to get customers to convert legacy systems to its next-generation DCS, the Industrial IT System 800xA, O'Brien said.
ABB does not seem too worried, however, as it sees a strong outlook for the remainder of the year and into 2007. Although the company has not released specific guidance, officials said. demand for power transmission and distribution infrastructure is expected to continue growing in Asia and the Middle East. In addition, ABB expects the pace of automation-related industrial investments to continue into early 2007 in most sectors, notably metals and minerals, marine, and oil and gas.