SKF AB, the world’s largest maker of ball bearings, reported a second-quarter profit that beat analyst estimates and said a global slump in demand from manufacturers shows signs of reaching bottom.

“While the decline in demand was dramatic compared to last year, the sequential trend for the group shows signs of leveling off,” Chief Executive Officer Tom Johnstone said today in a statement. “We are already seeing benefits from our cost reduction activities.”

Net income fell to 323 million kronor ($41 million) from 1.37 billion kronor, Gothenburg, Sweden-based SKF said in the statement. Analysts had estimated a profit of 207 million kronor. Sales fell 12 percent to 14.17 billion kronor.

U.S. industrial production probably fell in June at the slowest pace in eight months, according to a consensus of 73 economists published today. SKF’s bearings and seals are ordered by manufacturers on a continuous basis for use in products from skateboards to cranes, making the company an industrial bellwether as its sales closely track the output of those products.

“The indication is that the second quarter will be the weakest demand-wise,” said Swedbank Markets analyst Mats Liss. “The overall impression is somewhat better. They have been able to balance the demand situation,” as cost cuts are taking hold.

Revenue fell 4.6 percent from the first quarter and sales by volume decreased 31 percent compared with the year-earlier period. For the third quarter, the company expects revenue to be flat compared with the prior period. Production will be relatively unchanged with output remaining lower than sales, reducing inventories, the company said.

‘Critical’ Autumn

“September, October will be a critical time to see how the rest of this year and the first part of next year will develop,” Johnstone said in an interview. “July and August will be a difficult period due to holidays and customer cutbacks. From what I see now, I can’t say” when a recovery will start, he added.

SKF gained 6.4 percent to 103.25 kronor in Stockholm trading. The stock has advanced almost 34 percent this year, boosting the company’s market value to 47 billion kronor.

Destocking by customers in the Service division has still “a bit to go” and short-time working programs sponsored by governments will continue in 2010 and may go into 2011 in some countries, the CEO said earlier on a conference call.

Greater Optimism

More than 25 percent of European capital goods suppliers expect a step-up in sales over the coming 12 months, compared with just 5 percent in the first quarter, according to a JP Morgan survey of 300 companies. Markets showing the most positive shift in sentiment included automotive, general industry as well as oil and gas end markets.

Though orders may start to recover, the benefits will be muted by depressed prices, according to JP Morgan. SKF in May said it will continue producing less than it sells until next year to keep inventories in check amid falling demand.

“We are at an inflection point in the industrial cycle, with leading indicators improving while lagging indicators such as results are still weak,” Bank of America Merrill Lynch analysts including Mark Troman said in a July 8 research note about the industry sector.

Further indications of manufacturing output will come from Swedish companies this week as Electrolux AB, the world’s second-biggest appliance maker, and heat exchanger producer Alfa Laval report earnings. Atlas Copco, whose compressors are used in manufacturing and mining, also releases results.

U.S. Slump Slows

Manufacturing in the U.S. shrank at the slowest pace since August 2008 and pending sales of existing homes advanced for a fourth month, underscoring signs the economy began to stabilize in the second quarter.

The Institute for Supply Management’s factory index rose in June for a sixth straight month, to 44.8. Readings of less than 50 signal contraction.

SKF targets 800 million kronor in annual savings through its cost-cutting program. A further 1,100 employees are set to leave as part of already announced programs and on June 30 SKF announced another 900 job cuts as it lowers output to match falling demand. About 18,000 people are working shorter hours.

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