12 Feb 2009
Feb. 12 (Bloomberg) -- ABB Ltd., the world's largest builder of electricity grids, said fourth-quarter profit fell 88 percent after booking $870 million in provisions for a cartel probe and cost-reduction expenses and an asset sale boosted year-earlier earnings.Net income dropped to $213 million from $1.75 billion a year earlier, the Zurich-based company said today in a statement. Analysts surveyed by Bloomberg estimated profit of $122 million. Orders decreased 19 percent to $7.18 billion. Sales rose 5 percent to $9.14 billion.
"The outlook for 2009 remains uncertain," Chief Executive Officer Joe Hogan said in the statement. "With our leading market positions and technology, combined with a flexible global production base, we aim to come out of this downturn in a stronger competitive position and we confirm our 2011 targets."
The Swiss maker of factory robots and transformers plans to reduce costs by $1.3 billion by 2010 after the economic slowdown clipped orders in October and November. The company will shift more production to emerging markets, where the growth in orders is outpacing more developed countries.
"The average 12-month backlog in the power business provides some visibility and time to restructure effectively," Bank of America Merrill Lynch analyst Mark Troman, who advises clients to buy ABB, said in a research note before the results were published. "The automation businesses have three to nine months so they will need to adjust more quickly."
Peers Slump
ABB follows U.S. peers such as Rockwell Automation Inc., the world's largest maker of factory-automation equipment, which said Feb. 2 that 2009 profit will fall below its previous estimates as the global recession hurts demand. Emerson Electric Co., the world's largest maker of power equipment for oil companies, said Feb. 3 that sales may fall as much as 8 percent this year amid a global recession and credit crisis.
ABB has fallen 40 percent in the last 12 months in Swiss trading, cutting the company's market value to 36.2 billion Swiss francs ($31.2 billion). That compares with a 23 percent decrease at rival Schneider Electric SA, the world's biggest maker of circuit breakers, in Paris, and 44 percent by Siemens, Europe's biggest engineering company, in Frankfurt. Schneider reports earnings Feb. 19.
Fourth-quarter profit in 2007 surged fourfold from $422 million a year earlier, boosted by a gain from the sale of energy services unit Lummus Global.
The Swiss company faces more than five investigations into alleged anti-competitive practices, including bribery and fixing prices in the market for large-scale transformers used in power grids. Siemens, Areva SA, and Toshiba Corp. are also accused of acting as a cartel. ABB said in December it would book an $850 million provision to cover a cartel probe and announced the biggest cost-cutting drive since facing bankruptcy in 2002.
