April 23, 2020 / 5:21 AM / a month ago

Sweden's SKF beats forecasts, demand outlook uncertain on pandemic

STOCKHOLM (Reuters) - SKF (SKFb.ST), the world’s biggest maker of ball bearings, reported a smaller-than-expected drop in first-quarter operating earnings, driving its shares up even though a slump in sales at the end of the quarter due to COVID-19 clouded its outlook.

FILE PHOTO: SKF headquarters are pictured in Gothenburg, Sweden September 11, 2019. REUTERS/Johannes Hellstrom/File Photo

SKF managed to keep its adjusted operating margin unchanged versus a year earlier, in spite of a steep 9% organic sales fall in the quarter, highlighting resilience in the business after years of cost-cutting and restructuring.

Still SKF, which generates about 30% of group sales from its automotive business and 70% from its industrial business, said on Thursday sales had plunged 25% in the last two weeks of March due to the new coronavirus outbreak and it refrained from giving a demand forecast for the second quarter.

Quarterly operating earnings at the rival of Germany’s Schaeffler (SHA_p.DE) were 2.27 billion crowns ($225 million), down from 2.66 billion crowns in the year-ago period, but well above the 2.07 billion crowns seen in a Refinitiv analyst poll.

Adjusted for non-recurring items, the operating profit was 2.57 billion crowns in the quarter.

“We have delivered another very strong set of results, despite falling demand connected to the COVID-19 pandemic,” SKF CEO Alrik Danielson said in a statement.

“We have continued to invest in innovation, optimize our operations and reduce costs.”

SKF shares were up 5.2% at 0750 GMT following the results.

“We had expected a solid quarter by SKF, but these are considerably better numbers looking at margins,” Citi said in a research note.

Danielson has revamped SKF during his five years at the helm, pushing investments in automation, a reshaping of its manufacturing footprint to be more in sync with regional demand, and cost-cutting.

As the coronavirus crisis hit, the company has taken new measures including the temporary closure of some plants as well as job cuts.

“We are preparing the business for a range of different demand development scenarios and feel confident that we will be able to act accordingly as the situation develops,” Danielson said.

SKF had earlier flagged it expected a material negative financial impact from the virus outbreak from the end of March.

Reporting by Johannes Hellstrom; editing by Kim Coghill and Emelia Sithole-Matarise

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