Three automation powerhouses flexed their financial muscles this week by reporting rock-solid quarterly results, continuing the string of positive news emanating from this sector during the last year.
ABB, Rockwell Automation, and Siemens all reported order increases, most of which stem from factory infrastructure build-outs in developing areas of the world, including Asia Pacific and India. They also cited ongoing product portfolio diversification and vertical expertise as primary contributors to their robust financial health. (View ABB's recent financial results; read about Rockwell's recent results; and see about Siemens' recent financial results.)
ABB today reported net income of $367 million on revenue of $6 billion for its second quarter of 2006, up 5% from the like period last year. The $367 million in net income for the quarter ended June 30 was more than double that of the like period last year. Orders were up 19% to $7.3 billion from the year-ago period.
The company attributed the high proportion of large projects in order backlog -- which may take several quarters before it is recognized as revenue -- as accounting for much of the difference between order and revenue growth.
Rockwell Automation, meanwhile, yesterday reported net income from continuing operations of $149 million on revenues of $1.4 billion for its third quarter, ended June 30. For the same period last year the company reported income from continuing operations of $127 million on $1.2 billion in sales.
Siemens, which also announced its third-quarter results for fiscal 2006 today, reported net income of €792 million, more than double the figure recorded for the like period last year. Sales were €21.1 billion, up from the €18.7 billion reported in last year's fiscal third quarter.
While the three companies have slightly different business strategies, they all pointed to their automation and power divisions as the prime revenue-generating engines. "We are clearly benefiting from the strong global demand for improved power infrastructure and increased industrial efficiency," noted Fred Kindle, ABB's president and CEO, in a company statement.
ABB's process business saw growth in marine, oil and gas, chemical, pharmaceutical, and pulp and paper businesses. Although they tend to focus more on discrete manufacturing, Rockwell and Siemens are now catering to these markets as well, which is helping to strengthen their balance sheets.
Rockwell's Logix control systems platform, for instance, is expected to contribute revenue of around $600 million this year, "and we are committed to growing that to $1 billion by the end of 2009," said Rockwell CFO James Gelly in an interview with Managing Automation.
To do that, the company is reinvesting some of its profits into building out vertical expertise in markets such as food, life sciences, CPG, and oil and gas, adding solutions around Rockwell products and sales expertise, Gelly said.
Siemens is doing something similar, but in different markets. "It was a particularly successful quarter in terms of reshaping our business portfolio," said Siemens CEO Klaus Kleinfeld, in a statement. "In addition to announcing a new joint venture for our carrier communications business ... we also initiated strategic acquisitions that will make Siemens an important player in clinical diagnostics, one of the most dynamic sectors of medicine."
Diversification has been the critical success factor for Rockwell and Siemens, noted Craig Resnick, an analyst with ARC Advisory Group (Dedham, MA). "Ten years ago you'd never mention Rockwell and Siemens in the same breath as a major process company like ABB ... but now they are more formidable players in the space," he said in an interview.
And considering that Rockwell and Siemens have historically been heavily tied to the automotive industry, the ability to sell into other vertical areas is keeping the revenue flowing. For example, Rockwell CEO Keith Nosbusch noted in a briefing with the financial community yesterday that sales into two of the company's largest automotive customers in Detroit are down 50% this quarter. Yet, the overall business remains strong.
"At one time their fate was tied to [a few] industries," Resnick said of Rockwell and Siemens. "Now it's tied to a whole portfolio. If process is up and discrete is down, it's still balanced. ABB is also doing well with their motors and drives, not just the process business," Resnick noted "It's almost like a mutual fund ... These companies have diversified their industry portfolio [and] as such that they can withstand a downturn."
And the outlook for all three companies remains bright for full-year results. Rockwell is projecting full-year revenue growth of 11%, which is the top end of the previous guidance. ABB's outlook for the remainder of 2006 "remains positive," officials said, as the demand for power transmission and distribution infrastructure continues in Asia and the Middle East. And Siemens expects full-year results to deliver income from continuing operations on par with fiscal 2005.