ABB Ltd. shares slumped the most in four months after the Swiss maker of power grids and automation gear said orders plunged because customers were less willing to make big purchases before the U.S. election and amid the U.K.’s decision to leave the European Union.
ABB also blamed uncertainty about the future of its power grid business for the dropoff, saying buyers held off until the company’s decision on Oct. 4 to keep the unit and reject a proposal from activist investor Cevian Capital AB that it be spun off.
Orders sank 14 percent to $7.53 billion in the third quarter, the Oerlikon, Switzerland-based company said in a statement Thursday. Analysts predicted $8.28 billion, the average of four estimates compiled by Bloomberg. Orders from the U.K. collapsed by 56 percent in the quarter, which began a week after the June 23 vote in favor of a so-called Brexit.
The referendum “had a massive effect” on U.K. orders, Chief Executive Officer Ulrich Spiesshofer said on a conference call with reporters. The U.K. market is “not totally broken in the long term, but there definitely is a dampening effect in the short term.” The leitmotif from ABB’s clients in the U.K. is “let’s wait and see” what happens, he added.
Deteriorating markets and orders could increase pressure on Spiesshofer. Cevian, ABB’s second-largest shareholder, on Oct. 4 called the company’s decision that day to keep the power-grids unit “unfortunate.” ABB’s board should reconsider “the incorrect decision” to keep the company’s “complex and outmoded” conglomerate structure, Cevian co-founder Christer Gardell said Thursday in a comment to Swedish news agency Direkt.
While ABB has been cutting costs, those reductions are being offset by declining sales, according to Vontobel analysts.
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ABB shares fell 6.7 percent to 20.52 Swiss francs at 12:30 p.m. in Zurich. The stock lost as much as 7.5 percent, the biggest intraday drop since June 24.
Operational earnings before interest, taxes and amortization dropped 3 percent in the quarter to $1.05 billion. Analysts surveyed by Bloomberg estimated $1.04 billion. The third-quarter earnings were “one of the weakest results in capital goods so far,” Daniela Costa, an analyst at Goldman Sachs Group Inc., said in a report.
The Swiss company also said Chief Financial Officer Eric Elzvik will leave in the second quarter next year “to pursue career opportunities outside ABB,” the company said in the statement. He will be replaced by Timo Ihamuotila, the CFO at Nokia Oyj.
“As we are now embarking into the full digitalization of the company, it is the right moment to add new expertise in this field in the financial area,” Antonio Ligi, a spokesman for ABB, said by e-mail. “There will be an orderly transition and handover to make sure no disruption is caused by this change.”
The operational Ebita margin widened by 0.1 percentage point to 12.6 percent, the company said. Margins in the power-grid business widened by 1.70 percentage points.
“ABB is operationally executing well while fighting an uphill battle on several fronts,” Panagiotis Spiliopoulos, a Vontobel analyst, wrote in a report. “However, the headwinds have become even stronger.”