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ABB Gains From North American Growth As Profit Rises

04/25/2012 | 04:56am US/Eastern
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-- Company says first quarter growth led by North America

-- Order growth weakest in China and southern Europe

-- Company says cost savings enough to compensate for pricing pressure

-- More than half of the decline in profitability due to lower demand in China

(rewrites, adding detail throughout)

 
   By John Revill 
   Of  
 

Power and technology company ABB Ltd. (ABBN.VX) Wednesday beat expectations with a slight rise in first quarter profit and said it would work on improving its margins which declined from a year earlier due to lower demand in China.

Like other power companies such as French rival Schneider Electric SA (>> SCHNEIDER ELECTRIC), ABB has been battling with slowing demand in Europe and China as the economies cool and prices fall for its products which range from power cables and transformers to robotics and industrial control systems,

A strong performance in North America helped ABB partially overcome the downturn, while it also pushed through cost cuts to combat weaker pricing during the three months to the end of March.

ABB said it is looking to profitable growth in 2012 and also improve operating margin, which fell to 11.8% from 12.1% a year earlier as the Zurich-company worked through a backlog of less profitable contracts.

"We saw improved profitability in several businesses compared with the end of last year, and we intend to build on that momentum to tap the many opportunities we see for profitable growth over the rest of the year," said Chief Executive Joe Hogan.

ABB said it expects its early cycle business, like automation and low voltage products, to remain steady or grow at a low single-digit rate.

The margin on operational earnings before interest, taxes, depreciation and amortization, the company's preferred measure which cuts out the impact of derivative gains and losses, fell to 13.9% from 15.7%.

More than half of the group's profitability decline was attributable to lower demand in China, especially in the construction and transportation sectors, ABB said.

"As we guided after the fourth quarter, there was continued price pressure on revenues coming out of the order backlog and mixed effects that impacted profitability, but we could mitigate most of that through cost savings," Hogan added.

Cost savings of $262 million, mainly though sourcing and productivity improvements, overcame lower prices of $250 million during the period.

U.S. orders increased by 27% but Hogan highlighted some weakness in China, where orders declined by 35%.

"We had considerable strength in the United States, that recovery continues, stronger than we anticipated," Hogan said. "Northern Europe continues to be good for us. Mediterranean areas are difficult and China saw some difficulties."

Net profit in the three months to March 31 rose 4.6% to $685 million, beating expectations of $674 million.

Sales rose 6% to $8.91 billion, beating forecasts of $8.84 billion, but orders were flat at $10.37 billion.

Analysts said the results were broadly in line with expectations, while the slower China situation should improve over the year.

"China is important for ABB, but other companies are more affected by the slowdown there. The improvement in the Americas can definitely make up for China," said Christoph Ladner, an analyst at Kepler Capital Markets.

At 0808 GMT, ABB shares were down 2.6% at 17.90 Swiss francs, valuing the company at CHF41.43 billion.

-By John Revill, Dow Jones Newswires; +41 43 443 8042 ; john.revill@dowjones.com

Stocks mentioned in the article : SCHNEIDER ELECTRIC
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