ABB Earnings: Backlog Execution and Double-Digit Pricing Drive Record EBITA Margin

Wide-moat ABB ABBN delivered impressive EBITA growth of 26% year over year, approximately double the rate of revenue growth during the same period last year. Execution of its order backlog combined with mid-single-digit price increases contributed to the strong performance and highlights the mission-critical nature and high switching costs of the group’s products. All operating segments were able to report EBITA margin expansion; the group EBITA margin expanded 200 basis points to a record 17.5% for this quarter. While management announced that it expects full-year EBITA margins to exceed 16%, expectations had already been baked into consensus expectations. Organic order growth of 2%, from an already high level and a book/bill ratio above 1 times, likely indicate that the group can maintain its robust performance. We reiterate our $37 fair value estimate and view shares as fairly valued.

Organic revenue grew 17% to $8.2 billion during the second quarter. The robotics and discrete automation segment was the fastest-growing segment, delivering 27% growth year over year, also benefiting from the easing of supply chain constraints. The outlook for the group remains favorable for the remainder of the year, supported by ABB’s order backlog of $21.9 billion, an increase of 14% year over year. Management confirmed it expects full-year revenue growth to be at least 10% for the full year, which was raised from 5% during the previous quarter.

Cash flow generation almost doubled to $760 million during the quarter, supported by higher earnings and a lower buildup of net working capital.