ABB Earnings: Full-Year Guidance Raised After Better-Than-Expected Order and Sales Growth

Wide-moat ABB ABBN reported organic order growth of 9% to $9.45 billion during the first quarter, significantly above company-compiled consensus of $8.40 billion, which highlights the mission-critical nature and high switching costs of the group’s products, alleviating (at least for the time being) investor concerns about an economic downturn hitting the business. Organic revenue growth of 22% was broad-based across operating segments, driven by the execution of its order backlog without any supply chain constraints and spillover effects of price increases implemented last year. A book/bill ratio of 1.20 times is a likely indicator that revenue growth is likely to persist (despite weakness in the residential end market) and has given management confidence to raise full-year organic revenue guidance to at least 10%, a substantial increase from initial expectations of 5%. While we plan to revise our forecasts for the better-than expected start to the year, we don’t expect a meaningful change to our investment recommendation, underpinned by our $37 fair value estimate, which we maintain. Shares are fairly valued.

Operating leverage, from an increase in volumes combined with price increases, supported EBITA margin expansion of 200 basis points to 16.3%. Margin expansion was evident across operating segments, most notably in the electrification segment, which increased 310 basis points to its highest level in recent years. Management expects the full-year EBITA margin to improve from 15.3% in fiscal 2022.

Net debt/EBITA remains healthy at below 1.0 times, which supports the group’s $1 billion share buyback declared in April. ABB also announced it will be delisting from the New York Stock Exchange to simplify its operations given its current three stock listings. This does not signal a shift in commitment away from the region, which accounts for 24% of revenue, evident by $170 million of investments in U.S. facilities to satisfy demand for clean energy and automation.