Where is ABB Going?

Feedback from a number of people within the channel is that ABB seems to be an enigma, especially its ABB ELIP group, Electrification Installation Products Business (the “old” Thomas & Betts brand.) The GE Industrial Solutions group is now part of 3 divisions (see below.) The company has gone through much change, structurally as well as with its personnel. The company has quality products, especially in the industrial segment with questions of its commitment to the construction segment, especially the “commodity” aspect of the construction market.

And the change can be seen in their Q2 earnings report.

A synopsis of the earning call, with a focus on North America / US included:

• Company is “very focused on cost mitigation”
  • Discretionary spending, travel, staffing and pay and “non-critical investments”
  • Continuing a degree of spending in R&D as well as digital
• Tough quarter, company-wide and globally.
  • Overall, orders -14%, revenues -10%, operational EBITDA down
• Transitioning to fully decentralized operating model (details below)
  • The concept is to become “even leaner” with each division “accountable”.  (Theoretically, smaller businesses should be more focused, and they should be nimbler, perhaps more entrepreneurial, maybe more responsive and more “in tune” with the market / customer. At least that is usually the theory when companies “deconstruct” themselves.)
• Divested Power Grids and using net cash proceeds to implement a share buy back (which was an interesting move – providing monies back to shareholders rather than investing into the business or retaining cash reserves in the COVID era.)
• Expect challenging quarters ahead (so, why do share buy back? To keep the stock up longer-term?)
• Need to further manage costs, especially longer term, so expect more virtual tools and remote sales / service resources (sounds like changes in sales model, possibly additional personnel)
• US – orders dropped 23%.  Motion, Industrial Automation, Robotics and Discrete Automation “heavily impacted”
  • Electrification” down mid-teens
    • But Electrification was down 12% globally
• Company is focused on “delivering attractive returns to its shareholders.” (Interesting little mention about customer / channel focus.)

Answers to analyst questions

• Resilient pricing on rollout of new products from GE Industrial
• Don’t have good performance on “inventory days outstanding”; seeing lower volume on inventory orders from distributors.
• One of the analysts asked about the activity looking 6-9 months in time. ABB was not encouraging.
• Feel “comfortable” about conversations and business to continue to drive factory automation will continue and be realized in the future.
• According to the CEO, feels T&B business is “quite remarkable during the quarter.” Improved margins. Feels management has the “right focus” and is taking “the right mitigating actions to improve performance”. (Note: when a draft of this posting was shared with some distributors, all commented on the phrase “remarkable” given their experience with the division and its service performance as well as field changes. All felt others in these product categories were easier to do business with.)
• Company’s Industrial Automation “service” business has declined significantly due to COVID (plant’s being closed? Not allowing non-employees in workplaces?)

Lucky 18?

On ABB’s June 10^th investor webcast, ABB unveiled its “new operating ABB Way”.  Elements included:

• 18 fully accountable divisions within four business areas
  • From a contact at ABB:
    • “ABB ELIP, Electrification Installation Products, is the former T&B business.
    • The GE business is now part of three groups:
      • Smart Power – breakers and control products
      • Smart Buildings – loadcenters and lighting panels
      • Distribution Solutions – low voltage and medium voltage gear.”
• Decentralized business
• Expect “active portfolio management” (could be sales, could be acquisitions)
• Goals is to “leverage strong position to create superior value for customers, employees and shareholders.”
• Strengthening “performance management culture”, “stability and profitability before growth”

So, if you’re a distributor, how many individual divisions are you working with? Are they talking to each other to support you and making the process easy and transparent or are you working with multiple divisions and hence the authorization, quotation, etc. processes are more challenging as if you are working with multiple companies? Or is it too early to tell?

And “profitability before growth”, which is understandable, also infers that there will be times when products will not be price competitive to capitalize on opportunities as well as perhaps a focus on reduced field sales support or alternative means of providing support (remote, self-service, expectations of distributors, etc).

Understanding ABB’s new “performance management scorecard” could help distributors understand divisional goals and determine where distributors can align with the company and, conversely, where there will be divergence.

While change could be good for the company, it can also be a challenge for its distributors who have undergone much change in interacting with the company and, perhaps, represent opportunities for competitors.

So, aside from COVID, which is impacting all, it appears that ABB is a company in change.

Distributors … how is this change impacting you? How is ABB performing for you? (on the “GE” side, the “T&B” side or collectively)