SKF Declines After Third-Quarter Earnings Miss Estimates

SKF AB, the world’s biggest maker of bearings, fell the most in three months in Stockholm after reporting third-quarter profit that missed analysts’ estimates amid weaker-than-expected demand from industrial clients.

Shares of SKF fell as much as 5.4 percent, the biggest intraday decline since July 18, and traded 4.8 percent lower at 171.8 kronor as of 4:46 p.m. local time. Net income dropped to 1.12 billion kronor ($172 million) from 1.22 billion kronor, the company said today. Analysts estimated profit of 1.22 billion kronor. Revenue was little changed at 15.6 billion kronor.

SKF said demand among industrial clients fell short of its expectations, with no immediate market recovery in sight. The Gothenburg, Sweden-based manufacturer is targeting 3 billion kronor in spending cuts through 2015, including eliminating 2,500 jobs. The company, which employs about 46,000 people, is moving production away from western Europe to regions with faster-growing markets, such as Asia and Latin America.

“We see some lack of traction in a number of other industrial markets - not getting worse but not getting better yet either,” Chief Executive Officer Tom Johnstone said in the statement. “The automotive business benefited from an improved demand and better mix of sales.”

The manufacturer is considered a barometer for the health of global industrial orders because its products are used in construction, carmaking and aerospace manufacturing. Analysts at DNB ASA described SKF’s weak third-quarter growth as “disappointing” in a note today.

Manufacturing Outlook

“SKF maintained its sequential demand and manufacturing outlooks at ’relatively unchanged’,” the analysts led by Lars Brorson said. “An unchanged manufacturing outlook implies a slower-than-expected earnings recovery for the fourth quarter and the first half of 2014.”

The third-quarter results could drive a 3 percent to 5 percent decrease to analysts’ consensus estimated earnings for the company for 2014, the DNB analysts said.

Emerging markets led sales growth, with revenue in Asia, the company’s second biggest market after Europe, gaining 5 percent compared with a year earlier. Sales decreased 2 percent in North America, missing the company’s expectations for growth in that market.

“Distributors were cautious and the industrial arena there didn’t have the traction we expected,” Johnstone said in a telephone interview. “As long as there is some political uncertainty there it will impact the business.”

North America was SKF’s third biggest market in 2012, accounting for about 22 percent of revenue. Europe represented 43 percent of sales and Asia-Pacific accounted for 24 percent.

Kaydon Bid

SKF’s bid to buy Ann Arbor, Michigan-based Kaydon Corp. for $1.25 billion prompted Moody’s Investors Service to say in September that it may cut the Swedish manufacturer’s credit rating should the takeover fail to help profitability. Standard & Poor’s reiterated its negative watch on SKF debt that month because of the possible effects of the bid on cash.

The company does not plan to make any more significant acquisitions in the next two years, Johnstone told investors in a conference call today.

The Swedish company’s debt is rated A3 at Moody’s and A- at S&P, the fourth-lowest investment grades at both credit-reporting companies.

“It’s up to us to continue to positively develop our business in the right way and generate cash so that the rating agencies have a more positive view,” Johnstone said.

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