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The eBearing News
October 18, 2006
SKF Reports Third Quarter 2006 Results
copyright © 2006 eBearing Inc.
SKF AB (Sweden; Stockholm:
SKFB)
reported financial results for third quarter fiscal 2006, coming in lower than
expected and prompting a sharp market reaction.
Sales for third quarter were Sek 12.54 billion (USD $1.7 billion), up 4.3% over 2005's
Sek 12.03 billion ($1.6 billion)
Third quarter operating profit came in at Sk 1.54 billion ($213 million), up 5.1% over
2005's Sk 1.46 billion ($202 million)
Profit before taxes fell on those higher sales, to Sek 1.42 billion
($196 million), from Sek 1.48 billion ($204 million) in 2005.
Third quarter net profit fell even further, to Sek 966 million
($133 million) from Sek 1.03 billion ($142 million) in 2005.
SKF said 2006's third quarter sales were up 4.3% over 2005 due to: volume effects (3.3% of the 4.3%),
structure/performance (1.1% of the 4.3%), more favorable price/mix (2.2% of the 4.3%) and
unfavorable currency effects (-2.1% of the 4.3%).
Calculated in local currencies, SKF reported third quarter sales were higher in Europe and Latin America,
significantly higher in Asia, and slightly lower in North America. Sales for the Industrial Division
paced the company, with Service Division also up and Automotive Division relatively flat from 2005.
The company's overall manufacturing activity level was flat from second quarter, but up
from third quarter 2005.
Looking forward to the remainder of 2006, SKF said market demand is expected to be slightly higher
across both products and services. Asian market demand is once again expected to set the pace, with
Europe and Latin America also higher, while North America is projected lower. Industrial Division
and Service Division sales are expected to be higher, while exposure to the automotive sector
continues to hit suppliers across the world, SKF projecting slightly lower sales in Automotive.
The down results generated harsh reactions in the equity markets and analyst coverage.
SKF B shares currently trade at Sek 115, well off the 52-week high of Sek 140 set in late April.
Not only the markets have been treating SKF harshly. Analysts at Dresdner Kleinwort
issued a new analysis, knocking SKF all the way down to "reduce" from "buy" and simultaneously
slashing the 52-week share price target from Sek 140 per share all the way down to Sek 109 per share,
below even the calculated support level of Sek 112.
In their research notes, DK pointed out SKF not only disappointed by failing to hit its
target numbers, but that third quarter margins across the board in Industrial, Service and Automotive
were all weaker than expected. Blamed were the company's unrealized productivity gains, a surprise
level of depreciation-related costs, and a generally, "inefficient capital structure."
Finally, DK noted the company's expected 10% share buyback plan was now likely to be in jeopardy
and reduced estimates for FY07 by 8% and FY08 by 11%.
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Unauthorized reproduction is prohibited.
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Entire contents Copyright 1999-2008, eBearing Inc. All rights reserved.
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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