Reuters: Hot Stocks: UPDATE 2-SKF shares rally after CEO more positive on second half

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UPDATE 2-SKF shares rally after CEO more positive on second half Apr 17th 2013, 11:05 Wed Apr 17, 2013 7:05am EDT * Q2 op profit 1.48 bln SEK vs forecast 1.54 bln * Sees flat demand in Q2 vs Q1 * CEO sees somewhat better business environment in H2 * Shares reverse initial drop, up 1 pct (Adds CEO comments, analysts, market reaction) By Niklas Pollard and Johannes Hellstrom STOCKHOLM, April 17 (Reuters) - Industrial bellwether SKF Inc, the world's biggest bearings maker, expects demand to stay flat in the next few months before an improvement in conditions in some of its major markets emerges later in the year. The Swedish company, a gauge of manufacturing activity as its bearings are used in sectors ranging from household appliances to nuclear power plants, has suffered five straight quarterly falls in sales volume, including a 9 percent drop in the first quarter. It forecast flat demand in the second quarter of this year, but Chief Executive Tom Johnstone saw light on the horizon. "When I look at our business we can see the turning point coming and we believe that unless there is another major shock, we will move into a somewhat better business environment in the second half of this year," Johnstone told Reuters after SKF reported a bigger-than-expected fall in first-quarter earnings. Johnstone said the Gothenburg-based company was seeing better activity among customers in sectors such as energy, particularly in China, while the hard-hit car and truck industry was stabilising. SKF shares initially fell as much as 2.5 percent to their lowest in some five months, but were buoyed by Johnstone's comments and edged 1 percent higher to 154.7 crowns by 1048 GMT. The European industrials index was down 1.4 percent. Squeezed by weak demand, first-quarter operating profit fell to 1.48 billion crowns ($232.1 million) from a year-ago 2.14 billion, falling short of a mean forecast of 1.54 billion in a Reuters poll of analysts. "There is continued uncertainty and cautiousness in the market place and this impacted our sales more than expected, especially in our industrial businesses and in North America," Johnstone said in the report. SLOW IMPROVEMENT SKF, which earlier this year unveiled plans to cut 2,500 jobs, said it expected only Latin America to show growth in business activity among major regions in the second quarter. Further out, Johnstone, a Scotsman and one of the few foreign CEOs to be running one of Sweden's blue-chip companies, said mixed economic signals made demand difficult to predict, but still made a case for a slow improvement. "I expect as we go through the quarter that we will start to see some signs that will help us in the third quarter, but at this point it's not enough to see us make a change in the second quarter," he told Reuters. Johnstone, at the helm of SKF for more than a decade, also said he saw "a little more upside than downside" to the outlook. Johnstone's comments helped offset the gloom over industrial demand which enveloped Sweden's coterie of exporting companies - a group also including Sandvik AB and Atlas Copco AB - after a dismal end to 2012, which was underscored by signs government spending cuts were hampering the U.S. economy, as well as unexpectedly weak growth in China. The euro zone, SKF's single biggest market, is also likely to struggle to exit recession this year. Industry analysts had been divided ahead of the SKF earnings report on whether the Swedish company, a competitor of U.S.-based Timken Co and Germany's Schaeffler AG , would forecast flat demand or pencil in a slight rise in activity. "The fact they are talking about flat sequential demand is perhaps a small warning for the rest of the industrial sector," Handelsbanken Capital Markets analyst Peder Frolen said. While the demand outlook remained clouded, sweeping inventory cuts late last year left SKF able to run production at a slightly higher pace in the first quarter and the company said it expected its manufacturing level to be unchanged. ($1 = 6.3756 Swedish crowns) (Additional reporting by Helena Soderpalm; Editing by Alistair Scrutton and David Holmes) Link this Share this Digg this Email Reprints

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