Well, as we all feared, the last quarter of the year isn't going to be as good for process automation vendors as we had all hoped. Some of the following can be chalked up to prudence on ABB's part in setting aside money it may need to cover certain legal disputes, but the rest -- the "program to reduce the current cost base by more than $1 billion by addressing and accelerating operational excellence, sourcing, footprint and productivity measures," which I take to mean figuring out ways to cut costs by a big boat-load, is undoubtedly a response to a gloomy reading of the economic tea leaves.
To wit: "Given the uncertainty surrounding the global economy, we must be sensible and prudent from an early stage and ensure that ABB’s cost base is in line with weaker market conditions," said Joe Hogan, Chief Executive Officer of ABB.
The complete release is below.
ABB fourth-quarter results to be impacted by pre-tax provisions of about $850 million
Zurich, Switzerland, Dec. 19, 2008 - ABB will book pre-tax provisions of approximately $850 million in the fourth quarter of 2008.
The provisions are for potential costs related to the previously disclosed investigations by the U.S. and European authorities into suspect payments and alleged anti-competitive practices, respectively. The provisions also include an amount for the anticipated impact of a pending tax dispute, asset write downs and restructuring charges relating to the weaker business environment.
ABB’s order intake for October and November 2008 reflect weakening market conditions, partly driven by the lack of affordable financing, uncertain commodity prices and deferral of customers’ investment decisions. The operational performance of the Group remains broadly at the level of the first nine months of 2008. However, the volatility of major commodity prices and exchange rates in the current quarter is again expected to have a negative impact on EBIT due to the mark-to-market treatment of hedging transactions.
ABB is launching a program to reduce the current cost base by more than $1 billion by addressing and accelerating operational excellence, sourcing, footprint and productivity measures. More details about this program and its potential restructuring costs will be announced when full-year earnings are reported on Feb. 12, 2009.
"Given the uncertainty surrounding the global economy, we must be sensible and prudent from an early stage and ensure that ABB’s cost base is in line with weaker market conditions," said Joe Hogan, Chief Executive Officer of ABB.
"Although the economic environment is currently quite challenging, ABB remains in a very solid financial position, with a strong order backlog and, over the long term, fundamentally sound demand for infrastructure investment and measures to improve energy efficiency," he added.
ABB remains confident that it will meet its previously communicated 2008 growth targets of 15-20 percent in power and in excess of 10 percent in automation (local currency revenues).