SKF Earnings: Earnings Beat Expectations Following Price Hikes and Product Adjustments

Narrow-moat SKF’s SKF B second quarter outperformed our expectations with record net sales of SEK 27.1 billion and organic revenue growth of 8.0%. SKF’s EBIT margin also strengthened to 13.3% , up 280 basis points year over year, as price hikes and trimming less profitable products helped offset cost inflation more than anticipated. The ongoing re-positioning of the automotive segment continues to bear fruit with segment EBIT margin strengthening to 7.1%, up 560 basis points year over year. While organic sales growth was broad-based, demand from electric vehicle, railway, and renewable energy customer industries were the largest drivers growing 26%, 20%, and 18% respectively.

Relaxation of coronavirus restrictions in China-- a material end market for SKF, accounting for 20% of group revenue—led to a 9.5% rebound in revenues in the region. Still, the year-to-date rebound in China remains weaker than SKF had expected. While many subsegments saw increases in the region, sales were significantly higher in the industrial distribution and renewable energy subsegments and automotive segments.

SKF continues to guide to high single-digit organic sales growth in 2023, despite expectations for a somewhat softer cadence in the third quarter. While we expect to make minor adjustments to our near-term estimates, we don’t anticipate they will affect our SEK 210 fair value estimate.