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Tue, Jul 15, 2003 - Page 12 News List

Analysts say ABB might have to cut 2003 profit target

RECOVERY Investors think the electrical-engineering company overestimated Europe's economic rebound and set unrealistic goals


ABB Ltd, the largest electrical-engineering company in Europe, may cut its profit forecast for this year as a recovery in the US and Europe takes longer than some economists expected, investors and analysts said.

The Zurich-based company, whose US$1.3 billion settlement of asbestos lawsuits won US Bankruptcy Court approval last Thursday, has pledged to slash 25,000 jobs by the middle of next year as it seeks to widen its operating margin to between 4 percent and 5 percent.

ABB, which has posted four straight quarters of losses, has been squeezed as machine orders in Germany, its largest market, fell 3 percent in May, the VDMA industry association said this month.

"It's going to be very difficult for them to reach their goals," said Daniel Bieri, who oversees the equivalent of US$730 million in Swiss equities, including ABB, at Swiss Life Holding AG in Zurich.

"Our economists aren't expecting a recovery until 2004,"he said.

Chief executive Juergen Dormann will post second-quarter earnings on July 29, when he's expected to report a return to profit, analysts said. It's the operating margin -- or earnings before interest and taxes as a percentage of sales -- that's causing them concern.

ABB's operating margin in the first quarter was 2 percent, half its goal. Dormann said April 29 he'll meet this year's targets.

"We [will] release results for the second quarter July 29," said Wolfram Eberhardt, a spokesman. "Until then, the profit goals we set earlier this year still apply."

"The risk that ABB will miss group objectives for the current year hasn't disappeared," said Urs Diethelm, an analyst at Bank Sal Oppenheim Jr & Cie in Zurich. "We don't assume an upturn in the months ahead."

Adrian Croxson at Credit Suisse First Boston in London expects margins of 3.4 percent this year and 7 percent in 2005.

Dormann has said settling lawsuits will speed the sale of its oil-equipment unit, which faces 8,000 asbestos claims. That business may fetch as much as US$1.5 billion as ABB seeks to cut debt of US$8.2 billion, analysts have said.

US Judge Judith Fitzgerald last week backed ABB's plan to settle lawsuits stemming from asbestos-lined boilers made by Combustion Engineering from the 1930s to 1960s. A US District Court judge must still approve the settlement.

"The chances are good that ABB will rid itself of its asbestos liabilities," said Peter Gachnang, who helps oversee SF35 billion at Swissca in Zurich.

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