Sandvik Lowers Production as Toolmaker’s Demand Weakens

Sandvik AB, the world’s biggest maker of metal-cutting tools, said it will cut production and search for more cost savings in response to weak demand.

Reductions will affect the materials technology, construction and machining solutions divisions, the manufacturer said today in a statement, without giving details on how much it will lower output. The Swedish company also reported third-quarter earnings that missed analysts’ estimates.

“The biggest difference in the market is the change in the mining industry from strong growth to a more tentative stance,” Chief Executive Officer Olof Faxander said in an interview. “The weakening trend has continued into the fourth quarter” and the company is “continuously looking” at responses such as eliminating temporary jobs.

Sandvik began a review of its organization last year aimed at boosting profitability under Faxander, who joined from Swedish steelmaker SSAB in February 2011. The manufacturer has trimmed its workforce this year to focus resources on more profitable operations.

Third-quarter net income rose to 2.1 billion kronor ($315 million) from 626 million kronor a year earlier, the Stockholm-based company said today in a statement. Analysts expected profit of 2.25 billion kronor, according to the average of 11 estimates gathered by Bloomberg. Sales declined 0.4 percent to 23.4 billion kronor.

In-Line Orders

“Order intake in machining solutions and mining, while weak, came in line with our expectations,” Lars Brorson, an analyst at DNB Bank ASA in London with a hold recommendation on the stock, said by phone. “A lot of peers, certainly in the Nordic capital goods sector, have lowered production levels and taken out inventories in the quarter.”

Sandvik shares rose 1.4 percent to 90.10 kronor as of 12:33 p.m. in Stockholm after declining as much as 2.6 percent earlier in the day. The stock has gained 6.8 percent this year, giving the company a market value of 113 billion kronor.

“Exactly how we lower production in the fourth quarter will depend on how the market develops,” Faxander said in the interview.

The number of employees has declined 1.6 percent so far this year to 49,251 at the end of September, even as Sandvik acquired Seco Tools AB in a purchase completed in March. Most job cuts have occurred in Sweden, while Sandvik has hired workers in growth markets, he said.

Seeking Clarity

Martin Prozesky, an analyst at Sanford C. Bernstein in London with an outperform rating on Sandvik shares, said he expects “further adjustments” in the mining and machining solutions divisions over coming quarters and that he would like clarity from the company about “timing on when further restructuring will be announced.”

Swedish mining-equipment rival Atlas Copco AB reported yesterday that third-quarter net income fell to 3.48 billion kronor from 3.6 billion kronor, beating estimates on “healthy” North American demand.

Currency effects, declining metal prices and more maintenance work hurt Sandvik’s bottom line, the company said. Sandvik moved its headquarters from the town of Sandviken to the Swedish capital this month.

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