UPDATE 2-SKF sees rising demand as Europe woes recede

Thu Apr 19, 2012 5:00am EDT

Related Topics

* Sees slightly higher overall demand in Q2 vs Q1

* Expects stable demand in Europe, higher in US, Asia

* Q1 operating profit in line with forecast

* SKF shares up 5.2 pct, lifts Swedish engineering stocks (Adds CEO, analyst comment, share price)

By Niklas Pollard and Johannes Hellstrom

STOCKHOLM, April 19 (Reuters) - SKF, the world's biggest bearings maker, struck an upbeat note for the industrial sector on Thursday, forecasting rising demand from the United States and Asia and a more stable Europe after in-line quarterly earnings.

The Swedish group, whose products are used in everything from jets to dishwashers and which is one of the first major manufacturers to open books on the first quarter, forecast overall market demand would be slightly higher in the second quarter versus the first.

"Again the main growth will be in the Americas, but we also expect a continued improvement in Asia and a stable development in Europe," Chief Executive Tom Johnstone said. "All three business areas are expected to show sequential growth."

SKF said it expected demand to be relatively unchanged in Europe, slightly higher in North America and higher in Asia and Latin America in the second quarter compared to the first.

The upbeat view sent SKF shares up 5.2 percent by 0853 GMT to lead a 0.9 percent gain in the Stoxx Europe 600 industrials index and lifted Swedish peers such as Atlas Copco and Sandvik about 4 percent.

Operating earnings at Gothenburg-based SKF fell to 2.14 billion crowns ($317 million) in the first quarter from a year-ago 2.50 billion, roughly in line with a mean forecast of 2.17 billion seen in a Reuters poll of analysts.

The operating margin in the quarter fell to 12.6 percent versus an expected 13.1 percent as the company scaled back production to bring down inventories.

"The market should look past that in light of the fact that volumes are as strong as they are in the first quarter while the outlook is so positive sequentially from a stronger base in the first quarter," Handelsbanken analyst Peder Frolen said.

EUROPE BOTTOMS OUT

SKF, traditionally a highly cyclical company, basked in strong demand through the first half of last year and racked up record sales and earnings for 2011 despite a slowdown as the euro zone crisis took centre stage towards the year end.

While a global company, almost half of sales come from Europe. The International Monetary Fund forecast this week the euro zone would suffer a recession this year despite central bank action to fight a credit crunch.

Demand in Northern and Eastern Europe was firm, markets in countries such as Spain, Italy and France remained hard hit by debt woes and related austerity but were now showing signs of bottoming out, Johnstone said in a conference call.

"When I look at daily sales activity it is not dropping more in these markets. It is holding fairly stable as we can see at the moment," he said.

SKF, which competes with the likes of U.S. group Timken and Germany's Shaeffler, said group sales in the first quarter inched up to 16.9 billion crowns from a year-ago 16.7 billion crowns, beating the 16.6 billion seen by analysts.

Sales volumes, a better demand measure as its strips out price, product mix and currency swings, dipped 0.8 percent, better than the forecast 3.8 percent decline.

In contrast to surging revenues in North America, organic sales in Asia declined 8 percent in local currencies in the first quarter, not least due to a slowdown in China as authorities sought to temper feverish growth in a soft landing.

"But we saw some improvement in our business as we went through the quarter in Asia," Johnstone said and forecast a recovery in sales to the renewable energy and railways sectors, both important segments for the company in China. (Editing by Mark Potter and Mike Nesbit)

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