February 4, 2020 / 12:53 PM / 16 days ago

UPDATE 2-Cost cutting helps bearings maker SKF beat Q4 expectations, China virus clouds outlook

* Underlying EBIT roughly flat despite organic sales drop

* Q4 sales just above forecast as China bucks slump

* Sees lower year-on-year demand in Q1 due to virus impact

* Says coronavirus impact factored into Q1 outlook

* SKF shares rise 6.5% (Adds background, detail, CEO comments, updates shares)

STOCKHOLM, Feb 4 (Reuters) - SKF, the world’s largest maker of ball bearings, said strong demand in China and cost cutting helped it weather weak demand in Europe and North America in the fourth quarter, but that it now faces production disruptions due to the coronavirus.

Its shares jumped 6% after it beat quarterly earnings forecasts as analysts said its cost cutting efforts were having an impact, although the Swedish company stressed that the coronavirus would affect its short-term outlook.

“If this is solved relatively quickly, we don’t see a long effect of this”, CEO Alrik Danielson said of the virus. “But of course during Q1 we are stopping (production in China) one more week (after Lunar New Year), and when it starts again we will certainly have some logistics hiccups.”

SKF, which generates about a sixth of group sales in China, said it currently expected to re-open its plants in the country on Feb. 10.

The rival of Germany’s Schaeffler said it expects first quarter demand to fall from a year ago, taking into account the estimated impact from the virus on operations and supply chains.

SKF had enjoyed strong growth in China in the fourth quarter of last year, tempering weak demand in other parts of the world.

It reported fourth-quarter sales that were flat year-on-year and down 2.9% on a like-for-like basis, narrowly beating analyst expectations.

With weak auto markets and slowing demand in several industrial segments flagged by a string of sector peers, many investors had seen SKF fairing far worse in the quarter.

While recent manufacturing activity surveys for Europe, China and the U.S. could hint at industrial demand nearing a bottom, effects from the coronavirus outbreak in China has surfaced as a worry for engineering firms.

Quarterly earnings at the Gothenburg-based group were 1.91 billion Swedish crowns ($198 million), down from 2.90 billion a year earlier, and below the 1.97 billion seen in a Refinitiv analyst poll.

However, adjusted for non-recurring items, operating earnings were 2.18 billion, roughly flat compared to the year-ago quarter, the group said.

Shares, of SKF, which generates about 70% of group sales from its industrial business and the rest from its automotive business, were up 6.5% at 1403 GMT.

“A consistent focus on cost reduction, especially during the fourth quarter, where cost reductions more than compensated for cost inflation, has allowed us to continue to deliver solid results,” Danielson said in a statement.

Analysts at investment bank Carnegie said the adjusted operating profit was 7% above consensus, “driven by a better-than-expected demand performance in the Industrial business”. ($1 = 9.6265 Swedish crowns) (Reporting by Johannes Hellstrom; Editing by Niklas Pollard and Susan Fenton)

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