ABB’s second quarterly report does not call for optimism
According to Swedish media, ABB’s report on its 2016 fourth quarter and full-year financial results stirred comments of disappointment among shareholders, and raised several uncomfortable questions for the management board to ponder.
According to SME Direkt, the operational margin fell unexpectedly in two of the four divisions, while the net profit of $489 million was 10 percent lower than expected in the fourth quarter.
On the other hand, the day before ABB’s result were announced, its U.S.competitors Emerson and Regal Beloit both revealed much stronger figures than expected. Both American companies improved their forecasts for 2017 and their shares rushed, reports Di.se.
While ABB has tried to dampen expectations, describing 2017 as a transitional year and referring to uncertainty andmodest growth globally, the question raised among shareholders is why the board set the bar so low dictated by current circumstances when the expectations from the shareholders are quite the opposite.
The company’s fourth quarter was a disappointment on several points, reports Di.se.
The reported operating profit was more than 10 percent worse than expected. The operating margin of 11.7 percent was also lower than the expected 12 percent, and lower than last year’s margin of 11.9 percent. More worrying is that figures for Electrification Products and Discrete Automation and Motion divisions dropped. Compared to this, Regal Beloit and Emerson had no problems increasing profitability of the comparable business despite the uncertainty rocking the global market.
On a positive side, ABB’s cash flow is very strong and increased by 5 percent. The total order intake was 3 percent higher than expected. Power Grids division recorded a strong growth, with the operating margin increasing by 80 basis points to 10.4 percent.
The unpleasant questions remaining for the ABB Board to ponder are:
- How did Emerson and Regal Beloit achieve profitable growth in the same unfavourable global environment?
- Why has the company lowered expectations for 2017 while the competition is trying to jump higher despite the uncertainty?
- How strong is the synergy between the Power Grids division and the rest of the Group?