Conservative · Stocks to Consider and Updates

ABB Posts Strong Revenue Growth; CEO Departs

Swiss engineering and robotics giant ABB Ltd. (NYSE: ABB – $21.05) reported  that net profit for the first period dropped 6% to $535 million, but easily outstripped a consensus of $431.5 million. On a per share basis, adjusted earnings totaled $0.31 and ahead of Street views of $0.22. Revenue for the period was up 6% to $6.85 billion. It should be noted that ABB announced in December it agreed to sell its Power Grids division. Consequently, the results of the Power Grids business are presented as discontinued operations and results for all prior periods have been adjusted accordingly. Total orders were up 3% (1% in US dollars), led by growth in the Electrification Products and Robotics and Motion divisions. Large orders were below the prior year period and represented 3% of total orders, down from 10%. The order backlog was up 6% (2% in US dollars) compared to a year ago, ending the quarter at $13.9 billion.

       However, the main focus in the news release was the surprise resignation of Ulrich Spiesshofer, a 14-year ABB veteran with more than five years in the top job and just months after the company unveiled a major new strategy to focus on four areas: Electrification, Automation, Robotics and Motion and its plan to sell its Power Grids unit  to Japan’s Hitachi Ltd. in a deal that valued the business at $11 billion. ABB’s stock price has struggled during Spiesshofer’s tenure and investors are viewing an appointment of a new chief executive as a positive. ABB Chairman Peter Voser, a former CEO of Royal Dutch Shell, will replace Mr. Spiesshofer on an interim basis until a permanent successor is found.

       This stock, up about 5.5% following the earnings and CEO announcement, is well suited to conservative investors with a long-term horizon. Total return potential is above average in my opinion, thanks in part to the company’s healthy $0.80 annual dividend yielding 4% and the ability for the company to grow revenue and earnings per share in businesses where ABB is either No. 1 or No. 2 in market share.

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