Conservative · Stocks to Consider and Updates

ABB Reports Mixed Results

  Revenues for electrical grid and automation technology provider ABB, Ltd. (NYSE: ABB – $24.39) increased 1% percent (3% lower in US dollars) in the second quarter thanks to improvements in Electrification Products and Robotics and Motion. Power Grids was stable and Industrial Automation was lower on the reduced order backlog. Total services and software revenues were stable, but 2% lower in US dollars, and represented 17% of total revenues, unchanged compared with a year ago. Net income increased to $525 million from $406 million and basic earnings per share was $0.25 compared with $0.19 a year ago. This result was impacted by lower restructuring-related expenses and a higher tax rate of 30% versus 25.1% compared with the same period last year. Operational earnings, however, were $0.30 per share compared to $0.35 for the same quarter of 2016, a decrease of 11% in constant currencies.

       The Swiss-based company said macroeconomic and geopolitical developments are signaling a mixed picture with continued uncertainty. Some macroeconomic signs in the US remain positive and growth in China is expected to continue. The overall global market remains affected by modest growth and increased uncertainties, e.g., Brexit in Europe and geopolitical tensions in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to negatively influence the company’s results.

       With this and the ongoing transformation of ABB, the company expects 2017 to be a transitional year. I believe the attractive long-term demand outlook in ABB’s three major customer sectors — utilities, industry and transport and infrastructure — remains intact and long-term appreciation potential is decent, given the significant earnings growth that is likely in the coming years. Patient, risk-averse investors enjoying the 3% dividend yield, may want to hold on.

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