SKF AB, the world's largest maker of bearings, said first-quarter profit rose 7.9 percent as rising demand from energy and farm-equipment customers enabled it to pass on raw-materials price increases.

Net income increased to 1.26 billion kronor ($214 million), from 1.17 billion kronor, a year earlier, in line with analyst estimates in a Bloomberg survey. Sales advanced 8.5 percent to 15.6 billion kronor, beating estimates of 15.06 billion kronor.

SKF, the first of Europe's large capital goods makers to report this quarter, is seen as a bellwether for other industrial companies because its products are used in a wide range of motorized equipment. Rising investments in wind turbines, tractors and other machinery helped the Gothenburg, Sweden-based company raise prices, overcoming higher costs for the metal and components it buys.

“It's a strong report and there was a slight sigh of relief,” said Peder Frolen, an analyst at Handelsbanken with an “accumulate” rating on SKF. “The most important thing is that the price increases they have pushed through to the market are biting. They have one of the toughest raw materials situations so it's very important to them to maintain a price increase face going forward.”

SKF gained 6.9 percent to 124 kronor in Stockholm, its biggest gain since Jan. 22. That put its market value at 56.4 billion kronor.

‘Higher’Demand

The company predicted “higher” demand for its industrial and service divisions in the second quarter and “slightly higher”demand for the automotive unit. North American demand will be flat, it said in a statement.

SKF froze production levels last year after orders from U.S. auto manufacturers fell. It said today that it is increasing production this quarter.

Sales at the industrial division rose 12 percent as energy, mining and agricultural customers bought more parts. Sales in services increased 12 percent while the automotive division grew only 2.3 percent, hampered by “significantly lower” sales in North America.

Chief Executive Officer Tom Johnstone has set targets of a 12 percent operating margin, and 6 to 8 percent annual sales growth in local currencies over the long term. The group exceeded these targets last year, and paid an extra dividend from its record sales and profits.

Operating margin for the quarter was 13.1 percent, unchanged from last year, the company said.

Steel Prices Rise

“The rest of the year will be much tougher than the first quarter” as scrap and finished metal prices continue their rise, Frolen said. “They need to increase prices again and I think they will.”

Steel prices are surging on higher input costs for energy, iron ore and scrap. Emerging markets such as China have taken up the slack in the North American market to keep prices rising.

Scrap has risen 50 percent since the beginning of the year, to about 300 euros per ton, Johnstone said on a conference call. “We'll see additional effects in the second quarter,” he said, adding that the company would continue to adjust sourcing and prices to contain them.

SKF, founded in 1907, supplies General Motors Corp., Alstom SA, and Bombardier Inc. Competitors include Timken Co., Schaeffler Group's INA Bearing Co., and China's Luoyang Bearing Corp.

SKF is adding two new factories in India, expanding plants in Germany and Sweden, and building a unit in Russia to make special wheel units for Russian railways.

“We're stepping up our growth to keep pace with global investments in industrial equipment,” Johnstone said in an interview. The company will invest more than 2 billion kronor this year in its own plants, he said.

The company announced in December it would close a plant in Kentucky and transfer production to Mexico in order to remain competitive in the auto parts market. It also said it would cut jobs in France. The reductions amounted to about 500 workers in a workforce of almost 43,000.

Other News:
SKF First-Quarter Net Rises 7.9% on Energy, Farming
Schaeffler Newly Developed the Angular Contact Needle Roller Bearing (Pic)
SKF's 1Q Sales Rise 9 Percent
Precise Lubricant Doses Reduce Costs and Preserve Resources (Pic)
Timken Launches New Bearings Manufacturing Plant in India
Hardwood Bearings Provide Versatility and Strength (Pic)
EnPro Industries Sets Date for First Quarter Earnings Release and Conference Call
NKE Deep Groove Ball Bearings Run Quietly