Swedish Ball-Bearing Maker SKF Hit by Sluggish China Car Market

STOCKHOLM—Sweden's SKF AB, the world's biggest maker of ball bearings, Wednesday cautioned about the brutal slowdown of a key customer: China's auto industry.

The company, whose parts are used in everything that spins, posted a 44% rise in second-quarter net profit, but SKF said the recent "radical" downward revision of the forecast for China's auto output, as well as weaker economic growth in the country, clouded the outlook for SKF's revenue from the region.

"This is a big uncertainty, probably the biggest looking into the third quarter," SKF Chief Executive Alrik Danielsson told reporters.

SKF said that while it succeeded in clinching new contracts with Chinese car makers in the second quarter, it was already feeling the heat in China and the broader region. Sales in the Asia-Pacific region—which account for 25% of group revenue—fell 3.7% in the second quarter, compared with the same period a year earlier, after a 5.6% rise in the first quarter.

SKF has a global presence and supplies ball bearings to many industries, including railways and energy, but is largely exposed to the automotive business, which generates more than a quarter of sales.

In the first half of this year, China passenger-car sales rose 4.8% to 10 million vehicles, a rate far below the gains seen over several years. Demand for cars remains tepid despite auto makers offering price cuts and other incentives. The latest survey by China Association of Automobile Manufacturers cut its forecast for China's automobile market in 2015 to a 3% gain over last year from 7% after sales notched only a 1.2% year-over-year rise recorded in May and a 3.7% increase in April.

Figures published earlier Wednesday by the Chinese National Bureau of Statistics showed that GDP growth in the second quarter remained unchanged from the first quarter at 7%. This was the country's weakest performance since the global financial crisis and comes against the backdrop of recent stock-market upheavals that threatens to disrupt the country's economy.

SKF said net profit for the three months ended June 30 was 1.71 billion Swedish kronor ($137.5 million), compared with 1.19 billion kronor in the same period a year earlier. Operating profit rose 13% to 2.38 billion kronor, on revenue of 20 billion kronor.

Write to Christina Zander at [e-mail]

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