Alfa Laval second-quarter profit beats forecast

STOCKHOLM (Reuters) - Swedish engineering group Alfa Laval ALFA.ST reported second-quarter core earnings well above market forecasts on Tuesday, though it said it expected demand to ease in the third quarter.

Alfa’s guidance for softer demand came after order intake held up surprisingly well in a second quarter disrupted by the pandemic, falling just 3% year-on-year to 9.7 billion Swedish crowns (854.10 million pounds).

Shares in the company were up 5.6% by 0715 GMT.

“The situation has developed significantly better than we estimated, the supply chains have worked well... and now our delivery on time has been restored to normal levels,” Chief Executive Tom Erixon told reporters on a call.

“Regarding demand... (it) looks more like we’re in the lower end of a normal business cycle downturn than in a pandemic crisis mode,” he added.

The company, a maker of products such as heat exchangers, said second-quarter adjusted operating profit (EBITA) fell to 1.80 billion crowns from 1.87 billion a year ago, beating a 1.35 billion crown analysts’ mean forecast produced by Refinitiv.

Alfa said the cost reduction programme it started at the beginning of the pandemic had saved it 325 million crowns in the second quarter.

Erixon said however the effect of the programme will reduce in the second half as the company ramps up sales to normal levels.

An analyst note from Citi said Alfa’s orders were 11% ahead of the industry average, and that the lower demand forecast was prudent given the second quarter’s high base.

Last week, the company announced a 1.73 billion euro ($1.98 billion) bid for valve maker Neles NELES.HE, but the Finnish firm’s largest owner said this was not in Neles' interests, raising expectations of higher offers.

“We’re in a good position with our offer... we are very hopeful,” Erixon said, adding that it had been mostly well-received by shareholders.

Reporting by Johannes Hellstrom and Colm Fulton; Editing by Niklas Pollard and Jan Harvey