SKF cuts output as global slowdown tightens grip

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 July 18, 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.
"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.
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 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.