Published January 14, 2013
STOCKHOLM – SKF
The Swedish firm, whose bearings are used in a range of products from washing machines to aircraft, is seen as an early indicator of economic trends due to the breadth of its markets. These include cars and trucks, which have been hit particularly hard by a downturn in consumer and business spending.
"Demand weakened as we went through the fourth quarter and we expect it to continue at this lower level at the beginning of this year," SKF chief executive Tom Johnstone said on Monday.
The firm said it aimed to reduce costs by 3 billion Swedish crowns ($464 million) by the end of 2015, including cutting around five percent of its global workforce of about 46,000.
"The important thing here is that the company is taking a tough period in demand as an opportunity to push up profitability," said Handelsbanken Capital Markets analyst Peder Frolen.
"On a net basis this is positive, but of course it provides a short-term worry, not only on SKF, but also for other industry related stocks with a big exposure to Europe," he added, referring to SKF's warnings on the weakness of current demand.
At 1155 GMT, SKF shares were up 1.3 percent at 163.6 crowns, within a European industrials index down 0.3 percent.
SKF's announcement came as German tyre maker Continental said it expected its growth to slow this year, and after Swedish medical equipment maker Getinge last week said it was seeing slower demand.
SKF, which in 2011 had costs of almost 57 billion crowns, said in October it would reduce production due to weakening demand, after in June having cut 400 jobs in Germany.
It said on Monday the latest savings drive would cost it around 1.5 billion crowns over 2012 to 2015.
The company is expected to report a fourth quarter operating profit of 1.7 billion crowns, according to Thomson Reuters Starmine data, down from 1.9 billion in the third quarter.
SKF spokeswoman Ingalill Ostman said demand had been particularly weak in December in the fourth quarter, and not only in Europe, but also North America and Asia.
"Our industrial businesses were weak in all regions, in particular the car market was weak in Europe," she said.
The company said its cost cutting plan included the transfer of some production from western Europe to eastern Europe, Asia and Latin America, as well as consolidation in other parts of the business.
The headcount reductions would be mainly via early retirement as well as voluntary redundancies, it said.
SKF flagged restructuring costs of 200 million crowns for the fourth quarter of 2012. Some 100 million crowns would be reported in impairments and write downs, it added.
"The annual savings from this first step will be 150 million crowns when fully implemented in the second half of 2013," it said. About 550 people would lose their jobs in the first stage, mainly in Ukraine, Italy, Sweden and the United States.
($1 = 6.4717 Swedish crowns)
(Reporting by Patrick Lannin; Editing by Ritsuko Ando and Mark Potter)