* Q1 results better than feared - analysts
* CEO warns of sharp drop in demand during Q2
* ABB says share buyback with Power Grids cash still planned
* Shares gain 5% in early trading (Adds CEO comments on jobs)
By John Revill
ZURICH, April 28 (Reuters) - Engineering company ABB reported first-quarter results that beat expectations on Tuesday, including an increase in orders, buoying its shares even as it warned COVID-19 lockdowns would hit business in the months ahead.
The maker of industrial robots, drives and software expected the coronavirus pandemic to trigger a "sharp drop" in demand over the next three months as measures introduced to curb the outbreak disrupted business.
The Swiss company is being affected by the economic downturn as customers shut factories and plunging oil prices batter demand in the energy sector.
"In the second quarter, we expect ABB's operations to be significantly challenged by a sharp drop in demand due to lockdowns in many parts of the world," said Chief Executive Bjorn Rosengren, the former Sandvik boss who took over at ABB in March.
Job cuts could not be ruled out as ABB moved into a "much more challenging environment," he told reporters.
ABB said the COVID-19 crisis had lowered revenues and profit margins in all its businesses during the first quarter. Revenues fell 9% to $6.22 billion, while net income fell 30% to $376 million.
Deutsche Bank said the results were "better than feared". Orders, for example, increased by 1% on a comparable basis, when most analysts had expected a drop of around 7%.
ABB's shares rose 5%, the biggest gainer in Europe's industrial goods sector.
"Q1 delivered a solid result with beat on orders, sales and margin," said Barclays analyst Shane McKenna, adding that cost-cutting had led to net savings of over $100 million.
Other analysts highlighted ABB's progress in separating its Power Grids business ahead of the division's sale to Japan's Hitachi, still on track to complete by the end of June.
ABB said it has eliminated most of the $290 million in so-called stranded costs in the business and would still return the proceeds from the deal, which valued Power Grids at $11 billion, to investors via a share buyback.
The buyback would be carried out in a "responsible way", Rosengren said.
ABB warned the coming months would be difficult.
Despite initial signs of recovering economic activity in China, many countries including the United States - its biggest market - faced restrictions.
ABB said most of its production facilities were fully or partly operational, although it was seeing disruption at production and service sites in some countries.
Reporting by John Revill; Editing by Michael Shields/Pravin Char/Jane Merriman