UPDATE 2-Sweden's SKF to cut output again as demand falters

Wed Oct 17, 2012 8:45am EDT

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By Niklas Pollard and Helena Soderpalm

STOCKHOLM, Oct 17 (Reuters) - World number one bearings maker SKF forecast slowing demand in the final months of the year as a downturn gripped nearly all its main markets and it said it would lower production to cut inventories and bolster cash flow.

Sweden's SKF, seen as a bellwether for manufacturing as its bearings are used in products from jets to dishwashers, is being squeezed by the euro zone crisis, worries over possible U.S. fiscal tightening and a slowdown in China.

"Demand for SKF's products and services is expected to be slightly lower for the Group, for all the business areas and for Europe, Asia and North America," it said in a statement on Wednesday, referring to the final quarter of the year.

"For Latin America demand is expected to be relatively unchanged," it added.

SKF's third-quarter operating profit fell to 1.91 billion crowns ($287.6 million) from 2.48 billion a year-ago, just missing 1.98 billion forecast in a Reuters poll. Its shares traded flat at 145 crowns by 1151 GMT, giving up earlier gains.

"The overall expectations were low and the market had expected them to bring down their guidance for the fourth quarter," Handelsbanken analyst Peder Frolen said.

"The market knows demand looks weak and I think that profitability, given the demand, is better than I believe people were worried it would be. That is why a report that was below consensus is not generating any big hit."

The Gothenburg-based company warned in June of slowing demand in western Europe and Asia and scaled back production in the third quarter.

Overall ouput will be cut in the final quarter. "We will run our production below sales to enable us to reduce our inventories and to support our cash flow," it said.

In June, the company cut 400 jobs in Germany and has said further measures were likely before year-end, a warning repeated by Chief Executive Tom Johnstone on Wednesday.

"We managed to adjust our cost base in the quarter and will further increase our actions on this going forward," he said.

SKF said a dip in sales, to 15.5 billion crowns, below the 16.3 billion expected by analysts, was mainly due to lower activity among its industrial customers and declines in Europe and Asia. ($1 = 6.6408 Swedish crowns) (Additional reporting by Veronica Ek; Editing by Patrick Lannin and Robin Pomeroy)

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