SKF Q1 2025: Strong margin in turbulent markets

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GOTHENBURG, Sweden, April 25, 2025 /PRNewswire/ -- 

Q1 2025           

• Net sales: MSEK 23,966 (24,699)
• Organic growth: −3.5% (−7.0%), driven by lower market demand across regions and industries, except for aerospace showing continuous growth.
• Adjusted operating profit: MSEK 3,233 (3,303). Continued strong price/mix contribution, driven by pricing actions and active portfolio management, as well as good cost control which largely offset the lower volumes.
• Adjusted operating margin: 13.5% (13.4%) with Industrial at 16.9% (16.4%) and Automotive at 5.2% (6.0%).
• Net cash flow from operating activities: MSEK 977 (1,781).

Rickard Gustafson, President and CEO:

"In a volatile environment, I'm pleased that we maintained our resilient performance and improved our adjusted operating margin year-over-year. We continue to execute our strategy including the creation of two independent and fit for purpose businesses and thereby creating strong foundations for the future.

Margin resilience despite continued weak demand

In the first quarter we saw continued weak demand resulting in an organic sales decline of −3.5% compared to last year. The lower volumes were partly offset by a solid price/mix. Demand in Europe remained weak. However, we view the announced state-backed investments aimed at increasing European competitiveness as positive long term. China and Northeast Asia posted positive organic growth for the first time in seven quarters, primarily driven by favorable comparable figures. Both Americas and India and Southeast Asia shifted from organic growth in Q4 to a decline in Q1. This was mainly due to the positive timing effects at the end of 2024 as previously communicated and a weaker automotive demand.

The adjusted operating margin was strong at 13.5%, a slight year-over-year improvement despite a weak market environment. The margin resilience was supported by an effective execution of pricing, portfolio management, and cost reduction initiatives. However, these initiatives did not fully offset the negative impact from lower volumes. Currency effects had a positive impact on the margin, mainly driven by a stronger USD year-over-year.

The adjusted operating margin for our Industrial business increased to 16.9%, driven by good portfolio and cost management execution. The Automotive business performed relatively well, considering the challenging market conditions, with an adjusted operating margin of 5.2%. We see potential in further improving the margin, but given the current turbulent environment, the timeline of achieving the targeted 8% adjusted operating margin level will extend beyond 2025.

Cash flow was not satisfactory at close to BSEK 1, mainly driven by increased working capital, including high accounts receivables generated by a strong quarter end, and negative currency effects.

Creating two fit for purpose businesses

The separation of the Automotive business continues at high pace, where the operating model and organizational design now have been concluded. Automotive's global manufacturing footprint has also been finalized with 16 factories. The overall separation process progresses according to plan, but the complexity of the separation, including the IT structure, may stretch the overall time plan.

The initiated organizational review is progressing well, rightsizing both organizations to create strong foundations for the future and to withstand turbulent markets. More focused businesses with less complexity allow for leaner organizational structures resulting in sizeable reductions in staff positions, not least within Europe. The number of positions affected, savings and restructuring charge will be presented in conjunction with the Q2 2025 report.

Outlook

Lately, the business environment has experienced significant volatility driven by increased geopolitical uncertainty including trade and tariff turmoil. We are preparing the business for different scenarios and remain confident that our strategy, in combination with our decentralized organization and effective cost management, will provide us with the agility and flexibility to navigate through these turbulent times. So far, we have largely compensated for increased tariff costs through price adjustments and we expect to continue to do so also in the second quarter, given current tariff levels. However, today's market uncertainty may influence demand and the prerequisites for certain products and markets.

We expect continued volatility and, even if we have seen signs of markets bottoming out, we plan for another quarter with negative volumes and expect organic sales to weaken somewhat in Q2, year-over-year."

Outlook and guidance

Outlook           

• Q2 2025: We expect continued volatility and, even if we have seen signs of markets bottoming out, we plan for another quarter with negative volumes and expect organic sales to weaken somewhat in Q2, year-over-year.

Guidance Q2 2025           

• Currency impact on the operating profit is expected to be around MSEK 400 negative compared to the second quarter 2024, based on exchange rates per 31 March 2025.

Guidance FY 2025          

• Tax level excluding effects related to divested businesses: around 26%.
• Additions to property, plant and equipment: around BSEK 4.5 excluding separation of the Automotive business.

A webcast will be held on 25 April 2025 at 09:00 (CEST):
Sweden: +46 (0)8 5051 0031
UK/International: +44 (0)207 107 0613
https://investors.skf.com

Aktiebolaget SKF
      (publ)

For further information, please contact:
Press Relations: Carl Bjernstam, +46 31-337 2517; +46 722 201 893; [email protected] 
Investor Relations: Sophie Arnius, +46 31-337 8072; +46 705 908072; [email protected] 

The financial information in this press release contains inside information that AB SKF is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication through the agency of the contact person set out above on 25 April 2025 at 07.30 CEST.

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SOURCE SKF