Release time : 2015-06-12 11:10:27
SKF AB, the world's largest bearings maker, said it will cut production to counter a surprise drop in demand for cars and light trucks as the global credit crisis prompted consumers to tighten spending in September.
The events in the financial market hit confidence and meant our automotive business and general industry in Europe had some effects of that,'' Chief Executive Officer Tom Johnstone said on a teleconference today. He has cut overtime, Sunday shifts and temporary jobs to counter the decline, which he said didn't affect large bearings for energy, mining and railways.
SKF, whose bearings are used in Man AG trucks and Electrolux AB washing machines, is the first big European machine parts maker to report earnings, setting the stage for Swedish peers Sandvik AB and Atlas Copco AB. Inventories rose to 21.9 percent of annual sales from 19.3 percent on currency fluctuations and the demand slowdown, the company said.
We're looking at our structure in terms of underperforming businesses and the different demand situation,'' Johnstone said. The changes could include job cuts, though no decisions have been made yet, he said in an interview.
Fourth-quarter demand will be ``slightly lower'' than a year earlier on declines at vehicle makers, the Gothenburg, Sweden-based company said. The company plans to take a charge of ``a few hundred million Swedish kronor'' in the fourth quarter on the restructuring changes, Johnstone said.
The CEO also plans to cut or delay some investments including new plants, revamps, and computer systems with long payback times, he said in the interview. SKF this year postponed plans to build a 250-million kronor factory in India because of faltering demand for ball bearings among motorcycle makers.
The restructuring and investment changes will focus on automotive and small industrial Miniature Bearings production in Europe and North America, Johnstone said. Since the cutbacks on Sunday and overtime work, 50 to 60 employees have already quit voluntarily, he said.
Third-quarter net income rose 8 percent to 1.22 billion kronor ($165 million), SKF said today. That beat a 1.13 billion- kronor estimate by analysts surveyed by Bloomberg. Sales gained 8.8 percent to 15.4 billion kronor, exceeding an estimate of 15.1 billion kronor.
SKF closed down 1.25 kronor, or 1.8 percent, at 70 kronor in Stockholm. The stock has declined 33 percent this year, cutting the company's market value to 32 billion kronor.
Sales and earnings at the auto division were little changed from last year while its share of group sales declined to 30 percent in the quarter from about 35 percent a year and a half earlier. Last year's revenue was almost evenly split between automotive, industrial and service sales.
SKF's sales and Needle Roller Bearings react quickly to downturns since many customers adjust their orders on production changes. The company boosted output in the second quarter after freezing it for a year on earlier declines in North American car and truck sales.
The company won't have to write down any inventory, Johnstone said.
SKF will be able to cover rising costs in scrap steel over the full year with price increases and other measures, Johnstone said, repeating earlier guidance. He said he expects the steel costs to stabilize in the fourth quarter.