Release Date: April 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• SKF AB (SKFRY) reported a strong operating margin of 13.5%, demonstrating resilience despite negative organic growth.
• The company achieved a positive organic growth of 2% in China and Northeast Asia, marking a turnaround after seven consecutive quarters of decline.
• SKF AB (SKFRY) is making significant progress in its strategic initiative to separate its automotive and industrial businesses, with important milestones achieved in organizational design and manufacturing footprint.
• The company is actively managing tariffs and trade challenges through a dedicated tariff command center and strategic price adjustments, minimizing financial impact in Q1.
• Innovation remains a key focus, with new products in the railway, mining, and industrial motor sectors enhancing customer value and sustainability.

Negative Points

• SKF AB (SKFRY) experienced a negative organic growth of 3.5% in Q1 2025, marking the seventh consecutive quarter of decline.
• Cash flow was weak in the quarter, impacted by higher working capital and currency headwinds.
• The company faces ongoing challenges in the automotive sector, with a soft demand for commercial vehicles and a margin of 5.2%, below the previous year.
• There is a risk of delays in the separation of the automotive and industrial businesses due to the complexity of the project, particularly in IT infrastructure.
• The geopolitical environment and tariffs pose uncertainties, with potential impacts on global demand and GDP that are difficult to predict.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Sign with SKFRY.

Q: Can you provide insights on how tariffs have evolved since their announcement and if there was any pre-buying activity from customers? A: Richard Gustafson, CEO: The tariffs announced on April 2nd were not reflected in March's activities. We observed a strong end to the last quarter, partly due to the unknown magnitude of Liberation Day and an Easter effect. Post-Liberation Day, we've seen customers adopting a wait-and-see approach, impacting activity negatively. However, there hasn't been significant pre-buying or stockpiling to circumvent tariffs.

Q: How should we think about free cash flow for the rest of the year, considering restructuring and potential inventory build-up due to tariffs? A: Susan Larson, CFO: We typically experience seasonal cash flow, which you can expect again. We anticipate extra cash in Q2 from the divestment of our bare EUR business. While restructuring costs will increase due to separation initiatives, we maintain strong underlying cash generation and finances.

Q: Regarding price adjustments in the US, will you increase prices across the entire portfolio or selectively on imports? A: Richard Gustafson, CEO: It's a mix of both. Some assortments will see general price increases, while others will have specific surcharges. We are focusing on mitigating the impact of tariffs, especially on imports from China, which are limited but still present.

Q: Can you provide more details on the right-sizing program and its potential impact on headcount? A: Richard Gustafson, CEO: We have approximately 13,000 staff globally, and we plan a sizable reduction. However, we are still assessing the impact by country, considering natural attrition versus real redundancy. We will provide more details in Q2.

Q: What signs indicate markets are bottoming out, especially in the industrial sector? A: Richard Gustafson, CEO: In our EEA industrial business, the order book has shown a positive trajectory for several months, indicating potential market stabilization. Before Liberation Day, we observed high activity levels in North America, Europe, and India, with customer inquiries and new project discussions, suggesting a positive outlook.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.