Morningstar | SKF's Normalised Margins Robust; Top Line Less So
Narrow-moat SKF's second-quarter normalised EBIT (excluding restructuring costs) beat market expectations with shares reacting positively. However, revenue declined for the first time in nine quarters on an organic basis. We have been forecasting weaker top-line growth in 2019 and so are maintaining our SEK 185 fair value estimate, which still offers about 10% upside to the share price.The company's larger industrial segment grew revenue less than 1% year over year, a deceleration from the past several quarters and the lowest growth since fourth-quarter 2016. Across its different regions, weaker demand came from several end markets including ones that are related to construction spend, marine and general industry. Demand for food and beverage was mixed, while aerospace and energy-related sales outgrew other end markets.
The automotive segment was weak, with the second quarter reflecting a continuation of the current trend marked by the third quarter of 4%-7% organic revenue decline. The weakness in automotive came from every region except Latin America. North American and Asian sales were "significantly" lower year over year.
Excluding about SEK 371 million in restructuring charges, the group EBIT margin declined 20 basis points, primarily driven by negative operating leverage in automotive.
While demand for ball bearings, SKF's core product, is tied to the ebbs and flows of the economic cycle, the company's returns and profits hold up during the dips in the cycle. SKF operates with a lean cost structure, benefiting from years of automation investments. It makes most of its products to customer specifications and through direct sales, which helps it maintain pricing power and profitability.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.