Release Date: July 18, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SKF AB (SKFRY, Financial) achieved a strong operating margin of 13.3% despite challenging market conditions and significant FX headwinds.
- The company reported a strong net cash flow of SEK 2.8 billion, up from SEK 2.2 billion in the same quarter last year.
- The Industrial business segment showed positive organic growth of 2.4%, driven by strong performance in Asia and improvements in aerospace, lubrication, and magnetics.
- SKF AB (SKFRY) has been successful in managing tariffs through effective pricing strategies, which helped maintain margins.
- The company is making significant progress in its rightsizing program, expected to generate SEK 2 billion in savings by 2027, enhancing long-term competitiveness.
Negative Points
- Organic sales declined by 0.2%, with the Automotive segment experiencing a significant organic decline of 6.2%.
- The company faced a substantial FX impact, reducing sales by 9 percentage points and affecting the operating margin by 0.9 percentage points.
- The rightsizing program involves a significant reduction of 1,700 staff positions, which is a painful but necessary step for future competitiveness.
- The Automotive separation process is ongoing with critical milestones yet to be achieved, posing potential risks and uncertainties.
- The company anticipates continued sizable items affecting comparability in the second half of the year due to separation and regionalization costs.
Q & A Highlights
Q: Can you provide more details on the prebuying activity in China’s wind market and any similar trends in North America?
A: Rickard Gustafson, CEO, explained that the prebuying in China is policy-driven, with customers trying to place orders before midyear. In Q1, SKF did not see much activity, but it increased in Q2. In North America, SKF has not observed any significant prebuying trends. The situation in July continues the trends seen in Q2.
Q: How did the prebuying in China and strong deliveries in India and Southeast Asia impact growth, and can this growth be sustained into Q3?
A: Rickard Gustafson noted that the wind business in China is about 1% of group sales and saw a significant increase due to prebuying, which is not expected to sustain. In India and Southeast Asia, some Q1 volumes shifted to Q2, particularly in Indonesia, indicating that the growth might not be sustained.
Q: Regarding the guidance of flattish organic growth, how much is driven by price increases linked to tariffs versus volume improvements?
A: Rickard Gustafson stated that the guidance does not foresee a significant uptick in EMEA volumes. The company plans to continue compensating for tariffs through pricing and surcharges. However, the positive impact from pruning activities and OEM business mix is expected to diminish.
Q: Can you elaborate on the savings program and the anticipated dis-synergies from the Automotive separation?
A: Susanne Larsson, CFO, explained that the SEK2 billion savings from the rightsizing program includes people-related savings and other operational efficiencies. Rickard Gustafson mentioned that dis-synergies will be detailed at the Capital Markets Day in November, but they are not quantified at this time.
Q: What is the outlook for Q3, considering the impact of tariffs and prebuy effects in China?
A: Rickard Gustafson stated that the guidance for Q3 is relatively unchanged from the same quarter last year. The outlook considers various factors, including tariffs and prebuy effects, but specific impacts are not broken down to avoid confusion.
Q: How will the separation costs and regionalization efforts affect items affecting comparability in the coming quarters?
A: Rickard Gustafson indicated that separation costs are expected to increase as the process gains momentum, and regionalization costs will also impact the second half of the year. Items affecting comparability will remain sizable.
Q: Can you provide more details on the surcharges and their impact on pricing?
A: Rickard Gustafson explained that surcharges are negotiated with customers and adjust with tariff changes. They are less sticky than price increases and will disappear if tariffs are removed. The company aims to largely offset tariff impacts through pricing and surcharges.
Q: What is the expected cash impact of the rightsizing program announced this quarter?
A: Susanne Larsson stated that the SEK2 billion charge from the rightsizing program will primarily impact cash flow in 2026, with minimal impact expected in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
