UPDATE 2-SKF to lift output in Q1, sees stable demand

Wed Jan 30, 2013 9:35am EST

* Ending rundown in own inventories

* Sees Q1 demand at same level as in Q4

* Q4 EBIT 1.23 bln SEK vs forecast 1.39 bln

By Niklas Pollard and Johannes Hellstrom

STOCKHOLM, Jan 30 (Reuters) - World number one bearings maker SKF, sensing an end to the slide which helped cut fourth-quarter earnings by 40 percent, said it planned to restore some cuts in production and end the rundown in its own inventories.

The output increase by the manufacturing bellwether in the first quarter of 2013 was only the second time in two years it has flagged a quarterly rise over the previous three months and appeared to be a nod to stabilising markets.

Last week SKF's U.S. rival Timken forecast a 5 percent fall in sales this year as customers continued to scale back inventories, but offered some hope for recovery in the second half.

SKF said it expected unchanged sales in the first quarter from the fourth in all business segments except trucks, where demand was falling. Better activity was expected for the aerospace and electrical industry segments.

SKF's fourth quarter operating profit fell to 1.23 billion crowns ($193 million) from a year-ago 2.01 billion and below the 1.39 billion seen by analysts.

"Everybody knew it was going to be weak," Handelsbanken Capital Markets analyst Peder Frolen said of the earnings which he described as poor relative to organic sales growth.

"On the positive side, volumes were decent and a flat outlook chimes with the market belief that this is the bottom, which is probably an accurate assumption."

SKF shares rose 0.7 percent by 1225 GMT despite the earnings shortfall compared with a 0.2 percent decline in the European industrials index.

"The overall macro environment is difficult to read with still a lot of uncertainty," the company said.

"However, at this point we expect demand in the first quarter for the group to continue at the same level as the fourth quarter, but still lower year over year. We plan to run our manufacturing broadly in line with sales in the quarter."

Earlier this month SKF unveiled plans to cut 2,500 jobs as demand faltered, not only in Europe but also in North America and Asia. It has said activity in December was particularly weak, underscoring a bleak outlook.

The company has also been facing headwinds from a strong Swedish currency in recent months and forecast that exchange rates would dent operating earnings by about 250 million crowns this year and by 50 million in the first quarter alone.

SKF proposed a dividend of 5.50 crowns per share for 2012, unchanged from a year ago an in line with expectations.

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