ABB ABB Ltd

By John Revill 

ZURICH-- ABB Ltd. has lowered its five-year growth outlook and plans to streamline its power and automated equipment operations to confront more sluggish than expected global demand, notably from emerging economies including China.

Zurich-based ABB, the world's largest maker of power grids, lowered its annual revenue growth target to 3% to 6% between 2015 and 2020 from 4% to 7% previously.

The company, which reported revenue of $39.8 billion for 2014, said it was facing weaker demand across emerging markets, while lower oil prices were reducing spending by customers in the energy industry.

The engineering group's rethink might involve the sale of its $12.6 billion power-grids business, which ABB is separating into a stand-alone division, though all options are on the table, said Chief Executive Ulrich Spiesshofer in a telephone interview with The Wall Street Journal.

Mr. Spiesshofer said it was "far too early to speculate" on an outcome to the review which should be completed in the next 12 months.

ABB's strategic reassessment comes amid pressure from some investors for the group to do more to improve profitability and growth. Cevian Capital, an activist investment fund, has recently built up a stake of more than 5% in ABB whose share price has fallen 12% in 2015.

The business review was "totally self-initiated" and Cevian has so far been in "listening mode," Mr. Spiesshofer said. A Cevian spokesman declined to comment.

Some analysts said ABB is having to catch up fast with intensifying competition as important customers like power utilities have cut back investment spending while Asian competitors fight for market share. Such pressure contribute to the decision by Alstom SA, ABB's big French rival, to sell most of its energy-equipment business to General Electric Co.

"[ABB has] adjusted targets which were overly optimistic, but the new targets remaining challenging," said Stefan Gaechter, an analyst at Baader Helvea. "The company should have gone quicker and further with their pruning of the portfolio. Competition in the power business, especially linked to utilities, is simply too fierce."

ABB said it has changed its outlook in line with worsening global economic conditions. When the company decided its targets last year, it was expecting global economic growth of 3% to 3.5% at an oil price of around $100 a barrel, with buoyant demand in the power, transport and infrastructure sectors.

"Global GDP growth is now more around 2.5% to 2% rather than 3% to 3.5%, and the oil price has come down in a significant way," said Mr. Spiesshofer. "We are looking at our targets in a responsible way and we have to acknowledge there is a changed world out there."

China's slowdown has put pressure on industrial companies around the world. The country's manufacturing measure for August slumped to a three-year low while economic growth in the world's second largest economy is set to slow this year, though the authorities in Beijing have said they are ready to stimulate the economy as necessary.

China and the U.S. are ABB's two largest markets, generating around a third of group sales.

"China is a tough environment, there is significant short term uncertainty," Mr. Spiesshofer said on a conference call with reporters. "Lower oil prices has made the major oil companies contract their discretionary spending, and with political uncertainty, it is important we stay cautious."

In ABB's organizational revamp, the company's five divisions will be realigned into four new operations: power grids, electrification products, discrete automation, and motion and process automation. The overhaul is intended to make it easier to serve electricity-grid customers and industrial clients such as electricity-intensive factories and data centers.

The strategic review of the new power-grids divisions, which will provide electricity transmission and distribution products and services for utilities, aims "to determine the best way to enhance its long-term success and create value for our customers and shareholders," Mr. Spiesshofer said.

ABB said it aimed to make around $1 billion in savings from its 100,000 strong white-collar workforce, though Mr. Spiesshofer declined to say how many jobs might go. The executive also signaled the company would also consider large acquisitions in the future after taking a pause over the past 12 months. ABB would also press ahead with selling off fringe businesses.

Write to John Revill at john.revill@wsj.com

(END) Dow Jones Newswires

September 09, 2015 06:19 ET (10:19 GMT)

ABB (NYSE:ABB)
Historical Stock Chart
From Mar 2024 to Apr 2024

ABB (NYSE:ABB)
Historical Stock Chart
From Apr 2023 to Apr 2024