Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ABB Ltd (ABBNY, Financial) achieved a record high operational EBITDA margin of 19%, driven by strong performance in three out of four business areas.
- The company saw growth in short-cycle orders, particularly in Electrification and Motion, which compensated for lower bookings in large orders.
- ABB Ltd (ABBNY) launched the new OmniCore controller for robotics, which operates 25% faster and consumes 20% less energy.
- The company continues to invest in technology start-ups, including AI-based clean tech companies in the smart building division.
- Operational EBITDA was up 10% year-over-year, with a margin increase of 150 basis points, reaching an all-time high of 19%.
Negative Points
- The market for machine automation is weaker than anticipated, impacting the Robotics & Discrete Automation segment.
- Performance in the e-mobility business was weak, with customers holding off on investments, particularly in Europe.
- China experienced a year-over-year decline in orders, particularly in Process Automation and residential buildings.
- The company faced impairments of $48 million in the e-mobility business, elevating the total quarterly loss in this segment to $87 million.
- Machine Automation division is facing a challenging market environment, with customers holding back on new orders, leading to a decline in revenues and margins.
Q & A Highlights
Q: Can you comment on the strong performance in commercial construction despite high rates and weaker leading indicators?
A: (Timo Ihamuotila, CFO) The commercial construction showed strong performance, particularly in the US and Middle East. Some divisions have diverted their activity to this area due to weaker residential markets. For example, our electrification smart buildings division had almost 10% growth in orders this quarter.
Q: What areas do you wish had seen further progress in ABB's portfolio?
A: (Bjorn Rosengren, CEO) Moving from a conglomerate to a purpose-driven structure was crucial. Most of our businesses are now aligned with our purpose and are leaders in their areas. We see good structure and product lines, especially in electrification and automation. The machine automation market is weaker, but we are confident it will recover.
Q: Can you elaborate on the profitability protection actions in the machine automation division?
A: (Bjorn Rosengren, CEO) Divisions facing headwinds, like machine automation, are adjusting their operations. This division mainly serves OEM customers, and the slowdown in industrial automation investments is affecting it. We are taking cost measures to defend future profitability.
Q: How is ABB positioned regarding potential trade tariffs?
A: (Bjorn Rosengren, CEO) Tariffs are not a big issue for ABB due to our local-for-local strategy. We are largely self-sufficient in key regions like China, Europe, and the US. This strategy has minimized the impact of tariffs on our business.
Q: Can you provide more details on the strong performance in the data center segment?
A: (Timo Ihamuotila, CFO) The data center segment continues to grow rapidly, with orders growing faster than the 24-25% rate mentioned at the CMD. Book-to-bill is positive, and data centers now represent close to 15% of orders in Electrification. We expect strong growth in medium-voltage UPS products in the second half.
Q: What is needed for the Process Automation margins to take another leg higher?
A: (Bjorn Rosengren, CEO) Process Automation has shown impressive margin improvements due to better gross margins and strong execution. The focus now is on growth, driven by the transformation in process industries. We expect continued strong performance and margins.
Q: Are you comfortable with the full-year revenue growth guidance of around 5%?
A: (Timo Ihamuotila, CFO) Yes, we are confident in achieving the full-year guidance. We expect book-and-bill to be about 5% higher than last year, supported by strong backlog conversion and positive trends in short-cycle businesses.
Q: How sustainable are the current high margins in Electrification?
A: (Bjorn Rosengren, CEO) The high margins in Electrification are sustainable due to strong portfolio management, value creation, and good growth numbers. The division has improved significantly, and we expect it to continue delivering strong margins.
Q: Can you discuss the pricing dynamics in Electrification and Motion?
A: (Timo Ihamuotila, CFO) Pricing has been a key factor in margin improvement, contributing about 1% during the quarter. Both Electrification and Motion have seen positive pricing developments, supported by good supply chain operations and strong gross margins.
Q: How quickly can data center sales accelerate from here?
A: (Bjorn Rosengren, CEO) The order book for data centers extends until the end of 2026, and we expect continued strong demand. Lead times have normalized, and we are well-positioned to meet the growing demand with our current capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
