Date: 2016-08-12

Bearings maker SKF to cut inventories as Europe wobbles

Sweden's SKF, the world's biggest bearings maker, reported signs of weakness in European markets and said it would run down inventories further in the coming months in the face of expected flat group-wide demand in the fourth quarter.

After riding a modest market upturn into the early months of 2014, growth prospects have been tempered more recently as signs of slowdown in European economic growth have added to weakness already evident in emerging markets such as Brazil.

While SKF, whose products make their way into equipment ranging from dishwashers to passenger jets, struck a reassuring note with its forecast for roughly flat demand, it also pointed to uncertainty about the European market.

"Looking forward we continue to operate in an uncertain business environment which may even have worsened slightly in Europe in the last months," the company said on Wednesday.

Gothenburg-based SKF said it would run its production somewhat below sales to reduce inventories after already easing the pace of output in the third quarter in the face of slightly softer than expected demand.

This week the German government slashed its growth forecasts for this year and next and for a company like SKF, which despite years of expansion in Asia still makes roughly a third of its sales in Western Europe alone, the weakness in the heart of the euro zone is troubling.

The uncertain demand in some markets also leaves SKF, a rival of U.S. Timken and Germany's Schaeffler AG, with a steeper hill to climb to reach its goal of an operating margin of 15 percent. It stood at 11.7 percent in the third quarter.

Operating profit at the group, a manufacturing bellwether due to its broad customer base, rose to 2.07 billion Swedish crowns (284 million) from 1.92 billion a year-ago, lagging a mean forecast of 2.15 billion in a Reuters poll of analysts.

(1 US dollar = 7.2801 Swedish crown) (Reporting by Niklas Pollard and Johannes Hellstrom; Editing by Mark Potter)

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