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SKF Sees European Demand Falling on Transport Industry

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Jan. 26 (Bloomberg) -- SKF AB, the world’s largest maker of ball bearings, predicted little change in worldwide demand for its offerings in the first quarter even as European customers in the transport industry curtail investments.

Sales of SKF’s products and services in the year’s first three months will probably be “slightly lower” in Europe compared with the fourth quarter, the Gothenburg, Sweden-based company said in a statement today. Global demand for all divisions is expected to be “relatively unchanged,” it said.

“Europe is a concern, and automotive is definitely weak,” Chief Executive Officer Tom Johnstone said today in an interview in Stockholm. “We’re well-placed to take advantage of growth in other areas, and I’m sure we’ll do that.”

SKF began reducing production at the end of the third quarter. The manufacturer is considered an industry bellwether because its bearings are used in products such as construction cranes and cars. The company is the first major Nordic manufacturer to report earnings this quarter.

SKF rose 0.3 percent to 158.30 kronor at the close of trading in Stockholm, compared with a 2 percent advance for the OMX Stockholm 30 Index. The stock has gained 8.7 percent this year, valuing the company at 72.1 billion kronor ($10.7 billion).

European Weakness

“The European automotive market was expectedly weak” with fewer car registrations in the fourth quarter, said Lars Brorson, an analyst at DNB Bank ASA in London with a “hold” recommendation on SKF shares. Brorson said it is “positive” that SKF had an unchanged or slightly higher outlook for all of its main segments except trucks.

Fourth-quarter net income fell to 1.17 billion kronor, or 2.57 kronor a share, from 1.31 billion kronor, or 2.87 kronor, a year earlier. Sales rose 5.5 percent to 16.3 billion kronor, in line with the average estimate of 17 analysts surveyed by Bloomberg.

The maker of bearings, seals and lubrication systems cut about 650 jobs, including 400 workers with temporary contracts, in the fourth quarter, mostly in Europe and in the automotive business, Johnstone said. The company now has about 3,850 temporary workers, and some of those positions will be eliminated in the first quarter, said the 56-year-old Scotsman who in March will have worked at SKF for 35 years.

Sweden’s economy probably entered a recession this quarter, and annual growth may only reach 0.6 percent this year, Swedbank AB predicted on Jan. 24, citing slumping exports and rising unemployment. Europe’s turmoil will “definitely” get worse before the situation improves, Swedish Finance Minister Anders Borg said last week.

SKF generated 46 percent of its revenue in Europe last year.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net.

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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