Conservative · Stocks to Consider and Updates

ABB Narrowly Beats Profit Estimates on Lower Sales; Proposes Dividend Increase

 ABB Swiss engineering firm ABB, Ltd. (NYSE: ABB – $17.14) reported slightly better-than-expected fourth quarter earnings on lower revenues. Profits from operations settled at $0.35 per share, up a penny from a year earlier and beating the $0.32 per share estimate the Street was expecting. ABB’s margin for operational earnings improved to 11.7% in the quarter. Revenues, however, fell 11% year-on-year to $9.24 billion, but matched analysts’ expectations. The company also noted comparable orders fell 2% from a year ago, reflecting challenging market conditions. The company said it would respond to sluggish demand in China by focusing on areas such as car plant automation and electricity projects while also cutting costs. As well as the slowdown in China, ABB has also been hit by weak demand from the energy industry following the collapse in oil prices. A cost-cutting program meant to trim ABB’s expenses by some $1 billion annually starting 2017 is ahead of schedule “in some areas,” according to company officials. The company is also proposing a 2.8% increase in the dividend.

       Looking ahead, the maker of industrial electrical power grids and industrial automation said it expects oil prices and foreign exchange effects to “continue to influence the company’s results.” With both currency headwinds and international demand weakness likely to persist for the time being, most observers now expect full-year 2016 sales of $40 billion, down from a previous estimate $45 billion, and earnings per share of $1.20. The Power Grids division is set for particular focus, with ABB planning to complete a strategic portfolio review of the new segment by the end of the year. This stock is best suited for patient investors. While the shares are expected to underperform the broader market over the next six to twelve months, they have strong appreciation potential out to 2018-2020 and the dividend payout – equal to about 4.6% – sweetens the pot.


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