UPDATE: Sandvik Bullish On Metal-Cutting Tools Outlook As Other Orders Disappoint

Engineering company Sandvik AB (SAND.SK) has seen continued strong demand for its metal-cutting tools during January in contrast with other parts of its business, Chief Executive Olof Faxander told Dow Jones Newswires Wednesday.

"Tooling order intake during the first weeks of January has continued the trend we saw in the fourth quarter. The first few weeks of this year, the market situation has been positive," he said.

The unit's orders rose 21% year-on-year in the fourth quarter to end-December. However, group total order intake was down 7% and earnings were hit by SEK1.6 billion ($237 million) in charges related to the company's restructuring program, with the heaviest costs incurred at Sandvik's mining-construction and materials-technology units.

Net profit in the quarter fell sharply to SEK731 million from SEK2.1 billion a year earlier. Operating profit dropped to SEK1.6 billion from SEK3.1 billion a year earlier, although when adjusted for the charges, operating profit totaled SEK3.2 billion.

"The underlying result was very strong," Faxander said, adding that only minor restructuring charges will be booked in the coming quarters.

Faxander, who joined Sandvik from Swedish steel maker SSAB (SSAB-A.SK) last year, said he expects costs savings to bolster margins during 2012.

Sandvik said the order intake and invoicing for 2011 was the highest in the company's history while the full year profit, excluding one-off items, was its second best ever with only the 2007 profit higher.

However, outside of Sandvik's metal-cutting tools, order intake for other units disappointed, particularly at the company's mining and construction unit.

"We saw Atlas Copco (ATCO-A.SK) report a very strong order trend for a similar business, and today we see Sandvik reporting a much weaker order trend", said Colin Gibson, an analyst at HSBC.

Atlas Copco Tuesday posted 17% on year increase for its mining-equipment unit in the fourth quarter while orders for Sandvik's mining and construction unit were down 19%.

The firm's materials technology unit, for which the firm has launched a new strategy and replaced management, continued to struggle, with a 19% drop in order intake year-on year and a SEK841 million operating loss. Faxander said his main focus in the short- and middle-term is to turn the business around but longer-term Sandvik could sell it.

"But in the middle- to long-run we can consider structural alternatives--which could mean a number of things, such as changing our ownership," he said.

At 1511 GMT Sandvik shares traded 4.3% lower at SEK96.15, losing some of their gains in the run-up to the results. The stock rose 19% in January. "The shares have had a very, very strong run up until today's results, so some profit-taking was almost inevitable," said HSBC's Gibson. He has an overweight rating for Sandvik with a price target of SEK100.

-By Katarina Gustafsson, Dow Jones Newswires [phone]; [e-mail]