Oil decline hits ABB’s orders in region

The Swiss engineering company’s other three regions – Europe, Asia and the Americas – were not hit as hard in percentage terms, and also had higher absolute values for their orders.

The Swiss engineering company ABB said orders from the Middle East and Africa fell the most as the company reported a 30 per cent profit increase for the fourth quarter but still fell short of analysts’ expectations.

The drop in regional orders was because of slower business in the oil and gas sector, ABB said yesterday.

The company posted a 7 per cent decrease in full-year net income to US$2.59 billion.

Profit surged to $680 million for the fourth quarter alone, helped by gains from the sale of businesses. However, analysts had been calling for a quarterly profit of $694m.

Orders in the Middle East and Africa fell by 16 per cent to $974m in the latest quarter from a year earlier.

The company’s other three regions — Europe, Asia and the Americas — were not hit as hard in percentage terms, and also had higher absolute values for their orders.

Worldwide, fourth quarter orders fell 6 per cent to $9.4bn, led by a drop in power systems products and low-voltage products.

Fourth quarter revenue fell 9 per cent to $10.34bn.

“2014 was a demanding year where we had to overcome the challenges of power systems and a low order backlog,” said the chief executive, Ulrich Spiesshofer. “We delivered on our ambition to achieve full-year profitability in power systems and took decisive actions to drive organic growth, cost-out and cash generation.”

Throughout this year, ABB said, earnings will be affected by lower oil prices and currency volatility.

Oil prices have lost more than half of their value since June.

Currency volatility is also expected to affect the company’s earnings, especially with the weakening of the euro against the US dollar and Swiss franc.

The Swiss franc has appreciated 11.9 per cent against the euro since the Swiss central bank abandoned its cap on the franc on January 15.

The company said that compared with the previous year, the shift in the dollar decreased fourth quarter orders by 5 per cent and revenue by 6 per cent.

ABB expects the trend to continue into this year if the exchange rate stays at current levels,it said.

Weaker growth in Europe could also affect ABB’s profit this year, despite the growth registered in the United States.

Geopolitical tensions are also a burden, the company said.

The company fell short of analysts’ earnings estimates because of “higher corporate costs and lower sales at most divisions”, said the Paris-based Société Générale analyst Gael de Bray, who recommends selling ABB stock. “It looks pretty light in terms of orders, and the margin is a touch below consensus as well.” He said the currency effect was slightly higher than analysts had estimated.

ABB has no plans to move units out of Switzerland in response to the recent jump in the Swiss franc, according to Mr Spiesshofer.

“We are very well positioned here in Switzerland … there are no plans at the moment to close anything or make any major moves here,” he said.

ABB shares, after falling 5.1 per cent in early trading yesterday, had rebounded by late afternoon and were nearly unchanged.

Before yesterday, the stock had declined 16 per cent in 12 months, while the Swiss Market Index added 6.4 per cent.

The euro had risen more than 1 per cent against the Swiss franc by about 3pm UAE time yesterday, with traders citing market talk that the Swiss National Bank was buying euros to weaken the franc.

* with additional reporting by Bloomberg News

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