ABB … Plodding Along

ABB’ globally, seems to be “plodding” along.  In this article analyzing the company from an investment viewpoint, the analyst compares ABB’s quarterly report versus some competitors and, for the most part, competitors prevail.  He does say that ABB has the products and services, the issue is more often execution and comments “there is a lot of work to do to get ABB on better footing … and more on par with the peer group.”

Highlights from ABB’s Q2 2019 Report (US / North America focus) and their slides

• Worldwide, orders up 1% and revenues up 2%
  • Solid growth in Electrification and Motion
    • Worldwide, Electrification up 5% with strong end-markets being rail, data centers and EV charging
  • Industrial Automation was down 4%
  • Motion was up 4% with strength in drives and services
  • Robotics and Discrete Automation was down 9% due to automotive and machine builders. Market still strong for logistics automation
• Total orders in Americas grew 7% with all segments up
  • Electrification revenue was up 4%
  • US, overall, was up 1%
  • Canada, overall, up 7%
  • Brazil, overall, up 30%
• Regarding the GE integration with ABB, which primarily impacts North America
  • ABB has identified about $70 million in “successful” cross-selling to date and the salesforce is now combined (which means they will try to start executing more effectively to drive cross-sales.)
  • Major digitalization effort underway to enhance former GE eCommerce platform with ABB products as well as digitalizing GE service records. (lots of investments being made)
• Electrification achieving about 5% operational EBITA margin and is on track towards its 15-19% medium target margin goal once expected integration benefits are achieved. (so, more streamlining, or throughput, needed to get to goals.)
• Expect move to country model to be complete by end of year. (will this make them more responsive to the local market or more bottom line focused due to need to meet financial goals set by corporate and to “send money back” to corporate?)
• Overall, “continue to grow despite market headwinds”. “Expect slight growth in comparable revenues for the group for the full year.”

From analyst questions

• Robotics was up in North America
• Seeing weaker China macro market and specifically in automotive sector, but issue is spreading.
  • ABB is “adjusting its cost basis” in China
  • Expecting soft second half in China
• US Electrification “solutions” business growing at faster rate than product business.  Expect Electrification margin to improve in Q3.
  • Had some higher solar warranty costs in Q2 vs prior year.
• US Electrification margin is 13.5%, down from 16.1% last year.
• Feel they are taking some share with GE business.
  • Feel they have a “more focused sales effort” driving GEIS business
  • “Reasonable or good” top line development in US
  • Not willing to share an organic growth number on the business but mentioned “when we look at market data in terms of volume growth and market share, it looks positive.” (perhaps concerned about competition but, really given that Schneider and Eaton are leaders? Or perhaps concerned not meeting expectations or analyst expectations?)
• Electrification
  • Recent price increases in “product business”
  • Reported growth in US in Electrification but wouldn’t state how much
  • Growth segments “data centers and ‘those markets’ including some industrial. Less so on residential construction.” (ABB CEO / CFO avoid specificity and growth numbers.)

Observation

Overall, the business seems to be “just there.” Not much insight regarding the macro environment / end-user markets. Some industrial weaknesses noted.

Hopefully the change to the country model will provide some autonomy to enable the Electrification business, which is the focus for many distributors, the ability to compete versus more nimble players for the “product” (T&B) business.  Competing against Schneider and Eaton in the distribution equipment business will take time for the investments in product to germinate. Till then they will probably focus on existing customers and specific opportunities. While industrial slows, perhaps the distribution equipment focus in the construction market can help the company balance its revenues.

From a distribution perspective, how is ABB supporting you?