SKF Falls as Profitability Misses Estimates on Cost Gain

SKF AB, the world’s largest maker of ball bearings, fell the most in four months as first-quarter profitability missed analyst estimates after spending increased.

SKF dropped as much as 4.6 percent, the steepest intraday decline since Dec. 20, and was trading down 3.5 percent at 164 kronor at 12:24 p.m. in Stockholm. Volume about matched the three-month daily average.

First-quarter pretax profit totaled 1.79 billion kronor ($272 million), Gothenburg, Sweden-based SKF said today. That was less than the 1.82 billion-krona average of eight analyst estimates compiled by Bloomberg. Earnings before interest and taxes and excluding one-time items amounted to 11.4 percent of sales compared with an average estimate of 12.2 percent. The cost of goods sold jumped 8.6 percent and selling expenses rose 9.5 percent.

“Profitability is weaker than expected in all business areas,” analysts at Nordea Bank AB said in a report to clients today. “SKF has not been able to improve the adjusted Ebit margin year-on-year, despite volume growth of 6.2 percent supported by cost savings related to its restructuring program, which should have filtered through during the year.”

SKF bought Kaydon Corp. last year for $1.25 billion to expand in the U.S. market for industrial shock absorbers, gas springs and vibration isolation systems. The company, which is targeting 3 billion kronor in cost cuts through 2015, is considered a barometer for the health of global industrial orders because its products are used in areas from construction and washing machines to carmaking and aerospace.

Growth Forecast

Demand for SKF’s products and services in the second quarter is expected to be “slightly higher,” driven by North America and Asia, and “relatively unchanged” for Latin America, SKF said in a statement today.

“Going forward we expect demand to develop positively both sequentially and compared to the second quarter last year,” SKF’s Chief Executive Officer Tom Johnstone said in today’s statement. “Manufacturing will be higher year on year and slightly higher compared to the first quarter.”

The forecast “should be a relief, as growth is clearly needed for the outcome to meet consensus for the remainder of the year,” the Nordea analysts said. The expected increase in manufacturing “should support profitability in the second quarter versus the first.”

SKF’s first-quarter sales rose 10 percent to 16.7 billion kronor, meeting predictions. Net income gained 56 percent to 1.24 billion kronor, beating the 1.15 billion-krona estimate.

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