• Revenue: SEK23.7 billion, down from SEK25.8 billion last year.

• Organic Growth: Negative 4.4% organic sales decline.

• Adjusted Operating Margin: 11.9%, up from 11.5% last year.

• Cash Flow: SEK3.6 billion, up from SEK3.4 billion last year.

• Net Debt: SEK9.3 billion, excluding pensions.

• Industrial Business Margin: 15% adjusted operating margin.

• Automotive Business Margin: Approximately 5% margin.

• Geographical Performance: Positive organic growth in India and Southeast Asia; negative growth in EMEA, Americas, and China.

• Currency Impact: Negative impact of 3.6% on sales.

• Outlook: Mid-single-digit organic sales decline expected for Q4.

• Warning! GuruFocus has detected 3 Warning Sign with SKFRY.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• SKF AB (SKFRY) maintained a strong adjusted operating margin of nearly 12% despite challenging market conditions.

• The company reported a robust cash flow of SEK3.6 billion, surpassing the same quarter last year.

• SKF AB (SKFRY) successfully executed strategic portfolio management, including bolt-on acquisitions and divestments, to strengthen its business.

• The Industrial business achieved a 15% adjusted operating margin, an improvement from the previous year.

• The company is progressing with its plan to separate its Industrial and Automotive businesses, aiming to list the Automotive business by the first half of 2026.

Negative Points

• SKF AB (SKFRY) experienced a negative organic growth of 4%, primarily due to weaker demand in China and the automotive sector.

• The company faced significant negative organic growth in China, with a decline of nearly 9%, impacting its overall performance.

• There was a notable reduction in sales, from SEK25.8 billion last year to SEK23.7 billion this quarter.

• The ongoing regionalization and manufacturing footprint optimization efforts are causing short-term inefficiencies and margin pressures.

• The wind sector in China continues to be a challenge, with no significant improvement in demand.

Q & A Highlights

Q: Can you elaborate on the current macro environment and inventory levels at your customers, and how does this affect your pricing strategy? A: Niclas Rosenlew, CFO, explained that there are no significant changes in inventory levels, with some exceptions in China and the US. Pricing remains selective, focusing on value-based strategies and new product launches rather than broad-based increases.

Q: Why did you choose to list the automotive business instead of considering a sale, as you did with the aerospace divestment? A: Rickard Gustafson, CEO, stated that the automotive business is deeply integrated with the industrial segment, making a listing more beneficial for value creation for employees, customers, and shareholders.