Bearings Maker SKF Sees Lower Demand as Carmakers Cut Orders

Posted on: August 04, 2015

SKF AB, the world’s biggest manufacturer of bearings, predicts demand will drop in the current quarter as clients from carmakers to mining companies see weakening orders from China. The stock declined the most in three months. “Given the latest macro coming out of China, there’s a big uncertainty,” Chief Executive Officer Alrik Danielson said on a conference call Wednesday. “This is probably the biggest uncertainty looking forward into the third quarter, much bigger than anything about Greece or anything else.” Gothenburg, Sweden-based SKF, whose bearings, seals and lubricants are used to reduce friction in everything from skateboards to mining gear and aircraft, seeks to counter sluggish demand by cutting 1,500 jobs. The savings effort, launched by Danielson shortly after he took over at the start of 2015, aims to cut costs by 1.2 billion kronor ($141 million). SKF’s automotive business will decline in the third quarter, while demand for other industrial offerings will stagnate, the company said. The global automotive market is “hitting the brakes” because of weakening demand from China and overcapacities in Europe, RBC Capital Markets analysts said in a note. SKF’s statement indicates that rivals such as automotive components maker Britain’s GKN Plc and Swedish compressor manufacturer Atlas Copco AB may also see weaking demand, they said. Shares Slump SKF shares dropped as much as 8.1 percent and were down 7 percent as of 11:13 a.m. in Stockholm, valuing the company at 81 billion kronor. Before today, the stock had risen 9 percent, compared with a 10 percent gain of the OMX Stockholm Index of Sweden’s 30 biggest listed companies. Danielson said the slowdown in the European car market in the third quarter is mainly due to seasonal effects. The company said today the automotive unit will remain part of SKF, denying speculation that it could be divested. The automotive division’s profit margin was 3.8 percent in the first six months, highlighting the challenge for the company to reach its target and increase the total margin to 15 percent. Adjusted operating profit was 2.58 billion kronor in the second-quarter, missing the 2.7 billion-kronor average estimate of analysts in a Bloomberg survey. Excluding currency effects, revenue declined 1.5 percent, the first organic sales drop in two years, according to Bloomberg Industries.

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