Reuters: Regulatory News: UPDATE 2-SKF cuts output as global slowdown tightens grip

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UPDATE 2-SKF cuts output as global slowdown tightens grip Jul 18th 2012, 11:21 Wed Jul 18, 2012 7:21am EDT * Sees slightly lower production in Q3 vs Q2 * Sees Q3 demand roughly unchanged from Q2 * Expects more cost cuts toward end of 2012 * Warns of probable EU anti-trust fine * Shares down 5.0 percent By Niklas Pollard and Johannes Hellstrom STOCKHOLM, July 18 (Reuters) - SKF, the world's top bearings maker and a leading indicator of manufacturing activity, is to scale back production and make further cost cuts this year as a global slowdown continues to tighten its grip on industry. The Swedish group, whose bearings are used in products from jets to dishwashers, on Wednesday, forecast flat demand for the third quarter, prompting it to plan for slightly lower production levels than in the April-June period. SKF's announcement came on the same day it warned of an impending fine by European Union authorities for anti-trust violations which, it said, will "materially affect" its results. By 1037 GMT, its shares had slumped 5.0 percent to 127.7 crowns. "I have got to say there is a lot of uncertainty out there," Chief Executive Tom Johnstone said. SKF, an early mover in the business cycle, sent shockwaves through the industrial sector last month when it warned of slowing demand in western Europe and Asia as the impact of the debt turmoil spread from the euro zone periphery. The softer market conditions had over the past month also reached the United States which had previously seen strong growth in demand on the back of broad-based economic recovery, Johnstone told a news conference. "In general industry in North America we are not seeing the same growth that we saw earlier in the year," he said. Painting a lacklustre picture of its markets, SKF forecast slightly lower demand in the third quarter from the second in Europe while demand was seen largely flat in North America and Asia. Latin America was the only region seen showing growth. Slowing demand from car and truck makers, mainly in Europe, also spells tougher times for truck makers such as SKF's domestic peers Volvo and Scania, both due to unveil quarterly earnings over the coming week. JOB CUTS SKF set out to cut 400 out of its about 5,200 jobs in Germany already in connection with its June warning on demand and Johnstone said on Wednesday additional measures to bring down costs were on the cards for the fourth quarter. "Especially in the industrial arena, we have more of our manufacturing still in Europe. Therefore, over a period of time, we will need to step by step adjust that into the areas where the growth and demand is much (stronger)," he said. Second-quarter operating earnings fell to 2.05 billion Swedish crowns ($293 million) from 2.62 billion in the same period last year and against a mean forecast of 2.08 billion in a Reuters poll of 19 analysts. The group's operating margin slipped to 12.0 percent in the quarter from 15.7 percent a year earlier, missing the 12.2 percent seen by analysts by a narrow margin. "The margin is weak, so that's a negative," Handelsbanken Capital Markets analyst Peder Frolen said. "Then we have this anti-trust issue which will probably frighten some people." SKF and sector peers are under investigation by authorities in Europe, the United States and South Korea for possible anti-trust violations and the Swedish company said it was likely it would be fined by the European Commission. The fine was likely to "materially affect" its results and cash flow though it was too early to assess the scope of the hit or the timing of it, SKF added. European Union regulators raided SKF and Germany's Schaeffler in November last year as part of the probe into possible anti-competitive activity among makers of ball bearings. A spokesman for rival Schaeffler said separately the investigation had not been concluded yet and that it would not issue any new guidance at this point, adding the company was cooperating fully with authorities. Link this Share this Digg this Email Reprints

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