ABB First-Quarter Profit Rises 87% on China, India

ABB First-Quarter Profit Rises 87% on China, India

April 24 (Bloomberg) -- ABB Ltd., the world's largest builder of electricity networks, said first-quarter profit climbed 87 percent, beating analyst estimates, as China and India increased investment in power stations and grids.

Net income increased to $1 billion, or 44 cents a share, from $537 million, or 25 cents, a year earlier, Zurich-based ABB said today in a statement. Analysts in a Bloomberg survey predicted profit of $737 million, according to the median of 14 estimates. Sales gained 29 percent to $7.96 billion.

``The global footprint is the strength of ABB,'' said Sacha Kever, who helps manage about $2.1 billion including ABB shares at Banca Del Sempione in Lugano, Switzerland.

ABB forecast spending on electricity distribution will remain ``buoyant'' in 2008. It's tapping investment in emerging markets, while the U.S. and other mature economies are renewing their aging infrastructure to cope with surging power needs. The company is currently without a chief executive after Fred Kindle quit Feb. 13 after clashing with the board over strategy. Interim-CEO Michel Demare said ABB could spend more than $10 billion on purchases.

ABB rose 29 percent in the last 12 months in Zurich trading, giving the company a market value of 68 billion francs ($67 billion). It was worth as little as 1.7 billion francs in 2002, when ABB faced bankruptcy.

``Demand from utilities and most of our major industrial markets remained strong around the world, especially in emerging economies, but also in the U.S.,'' Demare said in the statement.

Dubai Smelter, Dutch Power

The company reiterated a 2008 growth target for power- related activities of between 15 and 20 percent, and about 10 percent for automation, which supplies industrial robots and factory machines.

Among orders in the quarter were a $53 million contract to upgrade electrical and automation systems at a Dubai aluminum smelter and a $150 million order to provide energy systems and grid connections for a natural gas and steam-turbine power plant in the Netherlands.

Earnings at Power Products, ABB's largest division, jumped 71 percent. Power Systems, which builds substations, reported the steepest growth, with a doubling in earnings. Automation, the second-biggest division, advanced 48 percent.

ABB's results follow disappointing earnings at peers. General Electric Co., the world's biggest maker of power generators, unexpectedly cut its annual profit forecast and quarterly earnings fell for the first time in five years. Turmoil in financial markets slashed the value of investments and thwarted end-of-quarter dealmaking.

Schneider Electric SA, the world's biggest maker of circuit breakers, fell the most in three months earlier this week in Paris trading after first-quarter sales missed estimates on slowing home construction.

Surplus Cash

ABB has too much cash on its balance sheet and potential acquisition targets are now cheaper, Demare said Feb. 14. The company had a cash pool of $5.6 billion at the end of the first quarter and spent about $240 million to repurchase shares as part of its 2.2 billion-franc buyback program

The company last spent more than $1 billion on a takeover in 1998, when it bought Elsag Bailey Process Automation NV for $2.1 billion from Finmeccanica SpA.

Still, the likelihood of a major acquisition may have declined with the resignation of Kindle, according to Stockholm- based Swedbank analyst Mats Liss.

The strategy fallout ``could be the choice between share buy-backs and acquisitions, Fred Kindle being more interested in keeping a war-chest ready for acquisitions,'' Liss said in an April 16 research note. It will be at least a year before a new CEO is settled so that may also reduce the likelihood of a large purchase, he said.

CEO Search

Chairman Hubertus Von Gruenberg, who joined in May last year, has said that the company was looking internally and externally for a successor.

Formed in 1988 through the merger of BBC Brown Boveri of Switzerland and ASEA AB of Sweden, ABB makes components and systems to transmit and distribute electricity, motors and generators as well as robots. Its workforce has shrunk to about 111,000 from a peak of 219,000 in mid-1998 as units including paper-making equipment and water treatment were jettisoned.

ABB can trace its roots back to 1883 when Ludvig Fredholm established Elektriska Aktiebolaget in Stockholm as manufacturer of electrical lightning and generators.

BLOOMBERG