ABB Ltd. (ABB) recently announced that it expects fourth quarter 2013 basic earnings to be 23 cents per share. The company’s updated guidance is based on a preliminary review of 2013 results. In the third quarter of 2013, the company had reported earnings of 36 cents per share.

Market Reaction

The fourth quarter 2013 earnings projection includes the effect of the additional charges owing to drags and delays in some projects in the company’s Power Systems (:PS) division. The aggregated charges amount to about $260 million and have been accounted for in the division’s operational earnings before interest, taxes, depreciation and amortization (:EBITDA).

The Zacks Consensus Estimate currently stands at 44 cents, well above the company’s expectation. We expect downward revisions in earnings estimates for the fourth quarter and full year 2013 following the preliminary review.

2013 Snapshot

ABB’s business has recently been negatively impacted by the weak performance of its PS division that specializes in efficient generation and transmission of power across the globe. In December, the company incurred additional charges to compensate for the overdue wind projects due to heavy storms near North Sea.

Moreover, ABB also faced some operational glitches in the quarter. Apart from these, Group legacy issues and restructuring and non-operating charges are also expected to drag down results.

For the quarter, the company’s net income will also include an extra charge of $50 million owing to restructuring activities taken by the company. However, ABB expects its cash flow to be in line with expectations as the other segments are likely to compensate for the deficiency in the PS business.

Outlook for 2014

We believe ABB will recover to exhibit modest growth rates in 2014 driven by the increasing demand for energy efficient products and its recent contract wins. Moreover, the increasing global investments in power and infrastructure are likely to strengthen the company’s position in the long term.

The Zacks Consensus Estimate for 2014 earnings is currently pegged at $1.71 per share, reflecting a year over year increase of 20.5%.

With preliminary results on the table, we are waiting for the release of fourth quarter and full year 2013 results on Feb 13.

ABB currently has a Zacks Rank #3 (Hold). However, other better-ranked stocks which are worth considering at the moment are Quanta Services, Inc. (PWR), Fluor Corp. (FLR) and Crane Co. (CR). All three carry a Zacks Rank #2 (Buy).

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