Operational EBITDA: Increased by 10% with a new record margin level of 18.1%. Gross Margin: Reached an all-time high of 37.4%. Earnings Per Share: Up by 6%. Free Cash Flow: $3.9 billion, corresponding to a free cash flow margin of 12%. Return on Capital Employed (ROCE): 22.9%. Comparable Orders: Increased by 7% to $8.1 billion. Revenue: $8.6 billion, up by 5% on a comparable basis. Electrification Orders: Up by 16% with a revenue growth of 11%. Motion Revenue: Up by 6%, achieving a record quarter above $2 billion. Process Automation Revenue: Improved by 4%. Robotics and Discrete Automation Orders: Turned to positive growth after eight quarters of decline. Dividend Increase: Proposed increase to CHF0.9 per share. Share Buyback Program: New program announced up to $1.5 billion.

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Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

ABB Ltd (ABBNY) achieved a new record operational EBITDA margin of 18.1% for the full year 2024, driven by a 10% increase in operational EBITDA. The company reported a strong free cash flow of $3.9 billion, maintaining a double-digit free cash flow margin for the second consecutive year. Electrification was a significant growth engine, with comparable orders up by 16% and revenue surpassing $4 billion for the first time. ABB Ltd (ABBNY) improved its return on capital employed (ROCE) to 22.9%, indicating strong long-term performance. The company announced a new share buyback program of up to $1.5 billion, following a $1 billion buyback in 2024, demonstrating confidence in its financial health.

Negative Points

Robotics and discrete automation underperformed expectations, with a significant backlog adjustment impacting order growth. The e-mobility business was a drag on group performance, with substantial losses reported in 2024. China remains a challenging market, with a decline in orders due to persistent weakness in several customer segments. The company faces geopolitical and market-related uncertainties, with the strong US dollar putting pressure on financial results. Higher corporate costs are expected in 2025, posing a potential headwind to margin improvement.

Q & A Highlights

Q: Can you provide insights into the data center market, particularly regarding backlog and lead times? A: Morten Wierod, CEO, explained that the data center market remains robust, with investments in AI and machine learning driving demand. Data centers accounted for 15% of electrification orders in 2024, up from 12% in 2023. Lead times have decreased to about 35 weeks from a peak of 50 weeks, indicating a normalization in supply constraints.

Story Continues

Q: What factors are influencing the margin improvement guidance for 2025? A: Ann-Sofie Nordh, Head of Investor Relations, noted that while corporate costs were lower in 2024, they are expected to rise in 2025, posing a headwind. Despite this, operational leverage from revenue growth and improvements in robotics and discrete automation are expected to support margin improvements.

Q: Why is the cash flow guidance for 2025 similar to 2024 despite expected revenue growth and margin expansion? A: Morten Wierod highlighted increased CapEx investments, particularly in electrification in North America and India, as a key factor. These investments aim to expand existing facilities and enhance automation, supporting growth in these markets.

Q: Can you elaborate on the electrification growth, especially in the construction vertical? A: Morten Wierod attributed growth to the broader trend of electrification across industries, driven by decarbonization efforts. This includes replacing traditional energy sources with electric propulsion, benefiting ABB's electrification, motion, and process automation businesses.

Q: What is the outlook for the e-mobility business in 2025? A: Morten Wierod stated that while e-mobility was a significant drag in 2024, losses are expected to halve in 2025. The introduction of new products like the T400 charger is anticipated to improve performance, with profitability expected later in the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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