Earnings Results … ABB, Eaton, WESCO

It’s earning season for publicly held companies and an opportunity to quickly review, look for some highlights / lowlights (never talked about much) and perhaps some confirmation of what many have experienced in the marketplace. We thought we’d highlight a few things to see what your thoughts are:

ABB
ABB shared it’s results on August 24th.  Click here for the transcript and here for the PPT.  Since many readers of ElectricalTrends are more focused on the Thomas and Betts / Low Voltage area of ABB, we’ll focus below on this area:

• Overall, ABB Americas is down 7% but the US is flat (0%) (Brazil and Canada down significantly) with Automation, overall, down 3% (which is the group T and B would be in).  This becomes important to consider as Greg Scheu, which many may know from his Rockwell and SourceAlliance days before he joined ABB, will now be responsible for ABB North America.  One of his main roles will be integration of acquisitions.
• While ABB didn’t explicitly say it was looking for other large acquisitions in North America, they did reference Greg’s involvement in the Baldor & Thomas and Betts integrations and that this is important for the future … and remember that Greg is more used to the controls and distribution equipment business.  They also touted his involvement in distributor and the additional support he can provide there.
• Baldor is having good increases in drives and motors.
• According to the presentation they are looking to “optimize channels” and “improve local product management” in an effort to increase penetration (selling more to existing customers)
• ABB is seeking “profitable growth”, sometimes through bundling and value-added, which will be interesting to see how distributors and Thomas and Betts work together on construction products where there is typically much margin (and price) pressure thereby necessitating SPAs.
• They are seeing some cost savings from the T&B acquisition and expect to accelerate this through improved logistical integration (which LP in North America needed).

With ABB’s goals and the need to drive LP revenues, coupled with Eaton wanting to grow its “Cooper” business, we suspect that distributors will be under pressure to convert to one or another in the coming year as both try to leverage their position (especially if ABB acquired a distribution equipment company.) While they will fight for share, with a consolidating industry, who has leverage? And will either, or both, of them drive the business (specs) at the end-user market to influence share or do they want to control their channels to market?

Eaton
Eaton, and hence Eaton / Cooper, reported their results on the 25th.  Click here for the transcript and here for the presentation.

Some observations:

• Sales up 42% (amazing what an acquisition can do for your top line!)
• Core electrical products group (i.e. old Eaton) was up 1%.  Eaton says the market is down 2%.   Is price so “down and dirty” or did they lose some share? What happened to the overall switchgear / automation business?
• Overall Electrical Products Group was up 3.4%, which indicates to us that the “old Cooper” was up more – possibly due to lighting?
• Over 30% of their lighting business is LEDs!  Lighting is up double digits. (in Americas)
• They are seeing increased bidding for non-resi projects (small and medium projects)
• Projecting 3-4% overall company growth in 2014 with additional Cooper synergies of $95M being realized (and we know some Cooper people who have left voluntarily and have heard of some coming that will not be voluntary.)

As an aside, the new Eaton probably represents close, or slightly more, than $1 billion in WESCO cost of good sold … which is probably 20-25% of WESCO’s electrical / utility material purchases.  Makes one wonder how Eaton will leverage this or will WESCO actively seek to mitigate this and broaden their supplier diversification … and what Eaton may then do!  Something to watch, and consider, if you are a distributor and contemplating your supplier line-up.

WESCO

Wesco shared their results to analysts on the 24th and gave the this presentation highlighting that they are up 16.6% for the quarter (and here’s a link to the transcript of the call).  Before you get too excited, or doubt the number, remember that they made some small acquisitions last year as well as a $1+ billion acquisition of EECOL in mid-December 2012.  So the numbers are distorted and what will become interesting is what happens if WESCO does not make another major acquisition in the very near future to impact 2014 results … or are acquisitions in the pipeline!

Some observations:

• We noticed that WESCO is reporting results by customer group in this PPT presentation to analysts, not by business segment, hence masking segment performance.
• Interesting that “Global Accounts” (also known in the industry as national accounts, which is typically very industrially-oriented) and Integrated Supply, represent $2.5B in sales … about 1/3 of the company.
• They are reporting that the industrial business is essentially flat (up .2%) and that their contractor business is up 1.1% for the quarter and 4% sequentially (which hopefully it’s better than last quarter)!
• But with industrial up .2% and contractor up 1.1% for the quarter, when you factor in price increases … is any growth being shown? Is market share, perhaps in some areas, being lost (and we heard of a Boeing agreement that was recently lost – don’t know if it was service that led to the issue or strictly a price issue.)
• Interesting that they mentioned that they’ve “added people in their pricing and supply chain management functions as we’ve heard of at least 4 people who were let go from the company since the end of June.
• They are seeing some lighting growth from LEDs and retrofits, which many in the industry could agree with as this has been one of the product bright spots (and it’s interesting to note that Cree  and Philips are sponsors (surprisingly no other fixture lines unless Cooper Lighting is buried under the Eaton sponsorship) of WESCO’s VIP contractor travel program – which will take people on a Med cruise or to Costa Rica).
• WESCO is seeing more bidding and growth in the small to mid-sized project market, especially for lighting and energy efficiency (I think it’s a little surprising that they emphasized”bidding” vs. offering value-added services to create this business – perhaps provides an indication of lack of differentiation?)
• They are expecting 2-4% growth in Q4 but organic growth being flat (so the growth comes from last year’s acquisitions), which may mean a slight decline due to price increases.  Presumably WESCO is hoping the trip program helps capture some contractor market share and continues to build their backlog (with some projects shipping by end of year.)
• When you read through the transcript you’ll see many questions relating to Canada … not much about the core electrical business, the national accounts business, e-commerce, US market share, the other segments (CSC, Carlton-Bates, TVC, etc) or, what I’d call, the “meat of the company.” But perhaps analysts like nibbling around the edges