July 17, 2019 / 6:44 AM / a month ago

Lockmaker Assa Abloy wary on some markets as savings lift second-quarter profit

STOCKHOLM (Reuters) - Assa Abloy (ASSAb.ST), the world’s biggest lock maker, reported a 28% jump in quarterly profit as savings and price hikes offset higher raw material costs but said uncertainty had increased in some markets such as Brazil, Mexico and Britain.

FILE PHOTO: An Assa Abloy lock and key are displayed in a shop in Riga, September 19, 2013. REUTERS/Ints Kalnins/File Photo

The acquisitive Swedish firm is investing in accelerating a shift from mechanical locks to electronic and digital alternatives ranging from fingerprint scanners to smartphone-activated systems under brands such as Yale.

The company, which has more than doubled sales over a decade and outgrown rivals in a fragmented market, said on Wednesday operating profit grew in the second quarter to 3.7 billion crowns ($397 million), matching analysts’ mean expectations.

This compares with 2.9 billion crowns a year ago, before large one-off costs related to a strategic review in China.

“It is encouraging to see how cost efficiency in everything we do is driving results,” Chief Executive Officer Nico Delvaux Delvaux said. During the second quarter our efficiency programs and other savings generated more than 200 million in efficiencies.”

The company didn’t provide a corresponding figure for Q1.

Delvaux told analysts on a call that he expected price increases and cost savings to more than compensate in the second half for higher U.S. import tariffs and other cost inflation.

Shares in Assa Abloy, whose range also includes security doors, access control systems and hotel room locks, were up 3.2% at 1207 GMT, taking year-to-date gains to 41%. The wider market in Stockholm .OMXSPI was down.

Analysts said a profit margin beat at the Asia Pacific division was the main positive surprise in the results.

“It is also reassuring that Assa has now offset previous raw material cost inflation,” Credit Suisse analysts said in a note.

MORE CAUTIOUS

Assa Abloy, whose rivals include Allegion (ALLE.N) and Stanley Black & Decker (SWK.N), said its Americas and Global Technologies divisions had strong sales growth while Asia Pacific and EMEA reported good growth.

In China, a relatively small market for the group but one that it has seen as key for long-term growth, sales were stable following years of headwinds.

In the quarter, sales of electromechanical locks grew 20%.

Overall sales growth before acquisitions, however, slowed to 3% from 5% in the previous quarter as well as a year earlier.

“Demand has generally been good in 2019, but with variations between different markets. In some markets, uncertainty has increased at the same time due to weaker construction indices and geopolitical challenges,” Delvaux said in a statement.

He told analysts that political leadership changes in Mexico and Brazil, the group’s biggest Latin American markets, had made businesses slightly cautious.

Residential market conditions in Britain had also worsened due to uncertainty over the country’s planned exit from the European Union while in Scandinavia, it was unclear whether a construction market slowdown was merely a small dip or the start of a trend.

“I’m not very pessimistic but perhaps a little bit more cautious than I was three months ago because of some new development in the market,” he said.

Reporting by Anna Ringstrom; editing by Emelia Sithole-Matarise

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