Morningstar | SKF Posts Good 2Q Results
So far into 2018, SKF organic revenue growth is trending ahead of our expectations, with no signs yet of a slowdown in the cycle. Volume improvements and cost-cutting are coming through in margin expansion. We plan to increase our SEK 195 fair value estimate by less than 5% based on the results. The issue at hand for SKF and other more cyclically sensitive capital goods companies in our coverage is risk of a slowdown in industrial capacity investment, owing to caution from a potentially expanding trade war, given the exchange of tariff increases already on the table or proposed by the U.S. and China, as well as the uncertainty around Brexit in Europe . The European PMI has been ticking down in the past couple of months. While we believe the shares are trading at attractive levels, we also believe that after two years of rapidly expanding order books, capital goods suppliers in Europe will likely see a return to more normalised growth next year. This is baked into our assumptions for more moderated revenue growth next year.Organic and reported revenue grew by around 8% in the the first half of 2018, with the larger division, industrial, growing by twice the rate of the smaller and lower-margin automotive segment, which grew by 5.2%.
The EBIT margin expanded by 130 basis points year over year with improvements in both segments. The automotive division posted a 170-basis-point margin expansion from the company taking steps to restructure the division.
AB SKF is the parent company of the SKF Group, which supplies products, solutions and services within rolling bearings, seals, mechatronics, services and lubrication systems. Services include technical support, maintenance services, condition monitoring, asset optimization, engineering consultancy and training. Co.'s business areas are: SKF Industrial Market - Strategic Industries, which includes bearings and bearing accessories and lubrication systems; SKF Industrial Market - Regional Sales and Service, which develops SKF Solution Factory facilities providing engineering capability; and SKF Automotive, which develops and manufactures bearings, seals and related products and services.
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