* Q1 order intake 22.5 bln SEK vs forecast 21.6 bln
* Says mining slump deepened in Q1
* Q1 EBIT 2.5 bln SEK vs forecast 2.6 bln
* Shares down 3.3 pct, drop from 11-month high
(Recasts with CEO comment, adds share price, detail)
By Johannes Hellstrom and Niklas Pollard
STOCKHOLM, April 25 Swedish engineering group
Sandvik AB suffered a further drop in demand for
mining equipment in the first quarter, the company said on
Friday, highlighting the impact of a squeeze on investment in
the mining industry in response to weak metals prices.
Sandvik shares were down 3.3 percent at 92.25 crowns by
1237 GMT, making them the top loser in the STOXX Europe 600
Industrial Goods & Services Index. The decline knocked
the stock from an 11-month high reached the previous session.
Posting quarterly earnings that fell slightly short of
expectations, Sandvik said customer caution had hit equipment
orders across its mining business, which accounts for roughly a
third of group revenue.
Sandvik and rival Atlas Copco AB account for more
than half the global supply of underground mining gear.
Deep spending cuts by mining heavyweights such as Rio Tinto
and BHP Billiton, brought on by softer metals
prices and investor anger over poor returns, has seen order
intake reach its lowest ebb in years at mining gear makers.
"Of course these lower volumes are going to cause further
... issues within our mining production system," Sandvik CEO
Olof Faxander told a conference call.
Sandvik said its operating margin had narrowed to 10.4
percent in its mining business in the quarter from 14.6 percent
last year, roughly in line with analyst expectations, but
Faxander flagged that further pressure on profitability was on
"So in the near term that could mean something like a couple
of percent (off) ... the EBIT margin for the mining business
area with the very low volumes that we are looking at," Faxander
Caterpillar Inc, the world's biggest maker of mining
and construction gear, earlier this week cut its 2014 sales
guidance for its mining unit, saying it saw a decline of about
20 percent compared with its previous outlook for a drop of 10
Order intake at Sandvik Mining fell 4 percent sequentially
in the quarter compared with the fourth quarter and 15 percent
over the year-ago quarter.
Analyst Peder Frolen at Handelsbanken Capital Markets said
the weaker mining business and overall concerns over
profitability were the main reasons for the fall in Sandvik
"I think it's in everyones' estimates that we are in a
cyclical recovery, so given the valuation multiples a lot of
focus turns to profitability. So I think the market is acting in
a correct way here," Frolen said.
Before their Friday decline, Sandvik shares had risen some
24 percent through the past nine months, leaving them on a
multiple of 15.5 times 12-month forward earnings estimates,
according to Thomson Reuters Datastream, a premium to the 13.5
times multiple for the STOXX Europe 600 index of blue
chip stocks as a whole.
Sandvik said adjusted operating earnings fell to 2.48
billion crowns from a year-ago 2.70 billion, just below a mean
forecast of 2.58 billion in a Reuters poll of analysts.
The group is in the midst of a drive to cut costs and boost
efficiency, in part by closing 25 of its 150 production plants.
The efforts have yet to yield a major boost to operating margins
that stood at 11.9 percent in the first quarter.
Analysts had seen the margin rising to 12.2 percent from a
year-ago 11.6 percent.
(Additional reporting Tricia Wright; Editing by Alistair
Scrutton and David Holmes)