ABB faces “hard weather sailing” in key businesses due to a second-quarter slowdown in several of its major markets, the Swiss power and automation group’s chief executive warned in an interview with Reuters on Tuesday.
Zurich-based ABB said a significant slowdown in China, a sharp drop in spending by customers in the oil and gas industry, and U.S. growth rates which are unlikely to match strong year-ago levels would weigh on its results.
ABB is also grappling with the arrival of new shareholder Cevian — an activist fund which has pushed for major changes at European industrial companies such as Thyssenkrupp — as well as speculation it might split in two amid a turnaround at its power unit, and scepticism among some analysts about whether it can achieve its five-year targets.
Speaking at ABB’s headquarters, Chief Executive Ulrich Spiesshofer described current trading as sailing in inclement weather and choppy seas.
“We are closing the hatches and setting the storm sails, but we will not deviate from our course,” said Spiesshofer, a former consultant and avid sailor who has led ABB since 2013.
ABB will not enter a price war by dropping prices to maintain volume at the expense of profit margins, he added.
“We will not give up and say, we’ll compromise margin for volume — that’s not ABB’s play,” he said.
ABB, which still expects to grow faster than its markets and the overall economy, reports second-quarter results on July 23.
Its shares closed broadly flat in a European blue-chip index up 1.2 percent.
ABB’s medium-term goals include growing sales by 4-7 percent a year to 2020, with core profit margins of 11-16 percent.
While sales fell in the fourth quarter and rose only 3 percent in the first quarter, Spiesshofer said ABB would stick with the targets.
“At the moment, there is no need to change the 2020 targets. We still have the same ambitions on a long-term basis but in the short term we are navigating a more difficult world,” he said.
Cevian, whose portfolio includes Swedish truck maker Volvo and British security firm G4S, has said it sees value in ABB. Cevian has raised its stake to 5.1 percent from just over 3 percent, regulators said on Tuesday.
Spiesshofer, speaking before news of the higher stake, welcomed Cevian’s investment while reaffirming ABB’s plans.
“We have a clearly defined strategy on ABB and we know how we’re going to unlock the value of this company. Any input and any discussion that allows us to fine tune and optimise what we’re doing is welcome,” he said.
He declined to comment in detail on discussions with Cevian. Cevian also declined to comment, but repeated it views ABB as a good company with considerable potential.
Spiesshofer, whose first move as CEO was to review and prune some of ABB’s activities, said the company had to get better at offering power and automation products to the same customers but that breaking the company up was not on the cards.
“I would not say we were perfect with our combined portfolio in the past so we’re working on improving that, but giving up a part of our differentiating value proposition to serve our customers? I have a hard time to imagine that,” he said.
Spiesshofer, head of ABB’s automation division when the company bid for power supply systems maker Chloride in 2010, said the company would scan for potential deals but remain disciplined if prices for industry assets rose.
ABB later walked away from a bidding war for Chloride, which U.S.-based Emerson Electric eventually won.