ABB Ltd (ABB – Free Report) has failed to impress investors with its recent operational performance due to tough end-market conditions and other challenges, which are likely to adversely impact its earnings in the near term.
Image Source: Zacks Investment Research
The presently Zacks Rank #4 (Sell) company has a market capitalization of $50.7 billion. In the past three months, the stock has lost 24.2% compared with the industry’s decline of 22.5%.
Let’s discuss the factors that might continue to take a toll on the firm.
Soft End-Market Conditions: Persistent softness in Motion and Robotics & Discrete Automation segments on account of supply-chain constraints and delays in customer deliveries have been adversely impacting ABB’s performance for a while. In the first quarter of 2022, the Motion segment’s revenues declined 6%, while the Robotics & Discrete Automation segment sales decreased 14% on a year-over-year basis. Issues like logistics and availability of labor are likely to continue affecting its customer deliveries in the near term.
Escalated Costs and Expenses: Cost woes and expense inflation pose a concern. ABB’s cost of sales increased 1.1% year over year to $4,684 million in the first quarter of 2022. Also, ABB’s capital expenditure totaled $187 million in the quarter. For the second quarter of 2022, ABB predicts a capital expenditure of $200 million. Its high capital expenditures might dent its profitability in the quarters ahead.
High Tax Rate: High effective tax rates remain a concern, with ABB predicting a 27% rate for second-quarter 2022. The figure is almost in line with 27.3% recorded in first-quarter 2022. Also, the effective tax rate is anticipated to be 25% for 2022. This might adversely impact ABB’s earnings in the year.
Forex Woes: Given its widespread presence in the international markets, ABB is exposed to unfavorable foreign currency movements. In the quarters ahead, ABB’s overseas business might be depressed by a stronger U.S. dollar.
Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for ABB’s second-quarter 2022 earnings has declined from 33 cents to 31 cents on one downward estimate revision. Over the same time frame, the consensus estimate for 2023 earnings has decreased from $1.73 to $1.71 on two downward estimate revisions.
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