SKF to increase cost focus against an uncertain macro backdrop

Swedish industrial bearings maker SKF (SKFb.ST) needs to increase its focus on cost-cutting to stay “ahead of the curve” in an uncertain macroeconomic environment, Chief Executive Alrik Danielson told Reuters in an interview on Wednesday.

Danielson also stuck with the company’s forecast for slightly higher year-on year demand in the fourth quarter.

With car sales in China and Europe slipping, and manufacturing purchasing manager indices in those markets trending lower, the fear is that the industrial market is next in line to take a hit.

Financial markets are on edge for signals of weakening demand, and investors have relentlessly sold off industrial stocks over the past few months.

“You have import duties and you have cost inflation with rising steel prices, while the duties and other things increase the uncertainty of the business cycle,” Danielson said.

“Even though we still see exactly the same outlook as we have stated, this has to do with being proactive in the cycle, and saying that in order to be ahead of the curve, this is the time to start increasing our focus on cost.”

SKF shares are down 23 percent this year, compared to a 45 percent drop for German rival Schaeffler (SHA_p.DE) and an 8 percent drop for the European industrial sector. .SXNP

Business daily Dagens Industri earlier on Wednesday, citing unnamed sources, said pressure on Danielson was mounting as the stock underperformed and that key staff had started to question him as a CEO.

Danielson said he was “really shocked” at the report. “I don’t recognize this at all,” he said.

The company has undergone significant changes in the nearly four years that Danielson has been at the helm, cutting thousands of staff, reshuffling management, and embarking on a drive to modernize and automate its manufacturing plants.

In a quarterly update, posted on SKF’s staff intranet last month and seen by Reuters, Danielson outlined positive developments in the quarter, but emphasized the need to cut costs, citing rising prices at suppliers, increasing steel prices and wages, and import duties.

“When you work extremely hard to serve the market it’s tougher to work as hard on cost at the same time,” Danielson said in Wednesday’s interview.

“But when you catch up, you can start to work on it. It can be things such as extra costs in logistics, it can be extra staff that you added because you needed to ramp up quickly, and other things.”

On Oct. 25, SKF, the world’s largest maker of industrial bearings, forecast slightly higher year-on-year demand in the fourth quarter, including a rise in activity for its industrial business and a slight decline for its smaller automotive business.

Its quarterly operating profit was in line with analyst forecasts, while profitability lagged slightly.

SKF derives about 70 percent of group sales from its industrial business and the rest from the automotive sector.