Will ABB Put It Together?

If you tried to make a movie about how poorly run ABB (NYSE: ABB  ) was for most of the past decade, people might mistake it for a Monty Python or Adam Sandler flick. If there was a way to screw up, the old ABB managed to find it. With new management in place, though, is it possible that this could be a real turnaround success story?

Third-quarter results would certainly give some reason for optimism. Revenue climbed 13%, orders rose 15%, and EBIT (that is, earnings before interest and taxes) climbed 81%. While operating cash flow performance wasn't quite that strong, 20% year-on-year improvement isn't bad and the company is free cash flow positive for the year to date.

While neither segment did poorly, the power technology business was definitely stronger than the automation business this quarter. Sales were up 15% (versus 10%), EBIT was up 89% (versus 21%), and orders were up 30% (versus 9%). Nevertheless, automation is still larger in terms of revenue, new orders, and margins.

Although the automation business saw good demand for petrochemical and marine business, the paper and automotive sectors were weak. Considering how major American and European companies like General Motors (NYSE: GM  ) and DaimlerChrysler (NYSE: DCX  ) are faring, that's no great shock. Likewise, I'm not surprised to see that the power business is seeing strong demand from Asian utilities, as well as good order growth in the Americas and the Middle East.

The trick for ABB is not only to keep revenue growing but to improve margins, as well. That could prove to be a tall order with competitors like Siemens (NYSE: SI  ) , General Electric (NYSE: GE  ) , Honeywell (NYSE: HON  ) , and Rockwell Automation (NYSE: ROK  ) fighting for some or all of the same business. Apart from standing out from the competition, ABB also needs to clean up its balance sheet and finally put its asbestos litigation to rest.

I know there are a lot of challenges here, but I still think ABB has some decent potential as a turnaround candidate. There's new management on board, and I see a lot of potential demand for new automation and power technology in emerging markets like China and India, as well as equipment replacement demand (especially for power) in the U.S. This is a risky stock from a company with a history of erratic performance, but it could be rewarding if it cleans up its act.

For more conglomerated Foolishness:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 497685, ~/Articles/ArticleHandler.aspx, 9/21/2014 2:24:41 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement