Second Quarter Orders Give ABB a Dose of Reality

ABB's apparent immunity to the economic hurricane buffeting both its competitors and its customers, which had previously led senior process automation vice president Nick Laming to predict a short, possibly six-month contraction and the early appearance of "green shoots," was dealt a severe blow in late July when the group published second quarter figures showing orders, order backlog, revenues, earnings before interest and tax (EBIT) and net income all down by double-digit percentages compared with the same period last year. Orders were down 35% in dollar terms, while EBIT was down 28%, with a consequent fall in margin from 16.1 % to 13.2%.

In the Process Automation division, orders were down by a half in dollar terms and by 43% in local currency terms, while the order backlog fell 17% or 7% in local terms. Revenues were down 9% in dollar terms, although they grew 4% in local terms and EBIT was 29% down, with EBIT margin falling from 11.8 to 9.3%.

The decline in orders was attributed to customers' uncertainty about future demand and limited access to capital and was common to all regions and all categories, although large orders were particularly affected. On a brighter note, both orders for industrial services and demand in the oil and gas sector were maintained at last year's levels.

However, while the ABB figures may have come as something of a shock, not least to the rest of the industry, Rockwell chairman and CEO Keith Nosbusch would almost certainly have been happy to settle for anything approaching them. Back in May, when presenting Rockwell's second quarter results, he had suggested that "We are getting close to the bottom," Three months later, his message had hardly changed: "It appears that we may be approaching the bottom of the cycle"―nor have the figures. Third-quarter revenue at $1,011 million was down 31% on the same period last year and down 4% compared with the previous quarter. Third-quarter net income was $32.8 million, down 79% compared with the same quarter last year, while operating earnings were down 67% at $86.3 million. Operating margin was 8.5%, a full nine points lower than a year earlier.

In the Architecture & Software segment, sales were up 2% on the previous quarter, but still 36% down on the same period last year at $399.5 million. However, Control Products & Solutions sales were down 8% on the previous quarter, despite Nosbusch's assertion back in May that "the steepest sequential declines are behind us," and down 28% on the third quarter of 2008. Architecture & Software operating earnings were $43.3 million, down from $154.7 million in the third quarter of 2008, while operating margin was down by more than half from 24.7% to 10.8%. Control Products & Solutions operating earnings were down from $104 million to $43 million, with the margin cut from 12.2% to 7%.

Faced with these results, Nosbusch's observation that "we have yet to see evidence of an upturn" would be difficult to contradict, although some may have less confidence in his belief that "As markets recover, we will benefit from the combination of our talented and dedicated employees and partners, differentiated technology, increasingly diverse revenue base and strong balance sheet."

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