July 17, 2019 / 6:23 AM / 2 months ago

Bearings maker SKF's profit falls, reassures on Chinese autos

STOCKHOLM (Reuters) - Swedish bearings maker SKF (SKFb.ST) forecast stable demand for its main industrial business in the third quarter and cited unexpected signs of improvement in the battered Chinese car market, spurring a 4% rise in shares.

The world’s biggest maker of industrial bearings reported second quarter profit fell 13% due to restructuring and impairment costs, though excluding them earnings beat forecasts, aided by cost cuts.

SKF - which derives around 70% of sales from its industrial business and the rest from autos - has felt the impact of a slump in car markets globally, especially in China, and signs of slowing demand for industrial goods.

The Gothenburg-based company, which rivals Germany’s Schaeffler (SHA_p.DE), said overall organic sales dipped 2% in the second quarter, its first quarterly decline in almost three years, hit by a 7% fall in its automotive business alone.

Still, the company surprised investors by pointing to signs of improvement in the Chinese car market, noting the company’s auto business in China had been flat in June.

“Some might be surprised that we see some flattening out in the China automotive market, and actually may be seeing some light in the tunnel,” SKF CEO Alrik Danielson told a conference call. “But if you look at China, and understand that the downturn there has been going on for quite a while longer than in other markets, then maybe it is not that strange actually.”

Chinese car sales dropped 12% in the first six months on 2019 according to industry organization CAAM.

OPTIMISM ON CHINA

The company said it expects to see slightly lower volumes overall as it enters the third quarter as industrial volumes remain relatively unchanged and automotive volumes fall.

SKF’s shares were up 3.5% to 166.20 crowns on the back of the results.

They remain down this month on the back of demand warnings from a string of auto suppliers as well as industrial technology group Hexagon (HEXAb.ST) and chemicals firm BASF (BASFn.DE).

Citi analysts highlighted SKF’s comments on China improving in June, saying “some market observers had believed China volumes were in free fall in June”.

Credit Suisse said in a research note that the outlook on the industrial front was a positive in light of the recent profit warnings from Hexagon and BASF.

SKF said its second quarter operating profit fell to 2.54 billion crowns (£218.17 million) from 2.93 billion a year ago, lagging the 2.62 billion forecast in a poll of analysts according to Refinitiv data.

Excluding restructuring and impairment costs, profit fell to 2.86 billion crowns.

Reporting by Johannes Hellstrom; editing by Deepa Babington

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