SKF AB, the largest maker of rolling bearings, said industrial companies around the world will stop running down their inventories this year, indicating orders will resume in early 2010 as global economies start to recover.

“There is still some de-stocking to take place at the large industrials, but I expect that to clean itself out between now and the end of the year,” Chief Executive Officer Tom Johnstone said in an interview in Gothenburg, Sweden, yesterday. “We will still run production lower than sales in the third and fourth quarters, but the gap between them will narrow.”

SKF production declined 36 percent in the first half as demand dwindled. Manufacturers order SKF bearings and seals for products from oil rigs to skateboards and hospital beds. That makes SKF an economic bellwether as its sales track industrial output. A typical western household uses about 130 different SKF bearings in products from cars to vacuum cleaners, the CEO said.

Production of bearings, seals and lubricants for the car and light truck markets, which accounted for 13 percent of total 2008 sales, is already in line with the order volume as auto companies stopped depleting inventories, Johnstone said. SKF’s automotive division will return to profitability before the end of this year, he predicted.

SKF rose as much as 2.9 kronor, or 2.6 percent, to 113.8 kronor, and traded at 113.3 kronor as of 12:48 p.m. in Stockholm. The stock has gained 21 percent in value in a year.

Cutting Expenses

SKF’s second-quarter profit fell 77 percent to 314 million kronor ($45 million) as sales dropped 12 percent and the company took one-time costs to cut jobs and working hours. Procution levels will almost match sales by the start of next year as orders pick up, Johnstone predicted. In the first half, sales by volume dropped 29 percent from a year earlier

The company said in July that 3,800 workers had left SKF since the third quarter of last year, and 18,000 employees were working shorter hours as the company targeted 800 million kronor in annual savings by the middle of next year. The workers on shorter hours will work longer again once production ramps up.

SKF forecast in July that demand would be “significantly lower” in the third quarter compared with a year earlier while demand would be “relatively unchanged” from the second quarter. The automotive division has developed a little bit better in the past few months than SKF had expected, while the industrial unit’s orders have been a little bit lower than forecast, Johnstone said.

‘In Line’

“The development on group level is in line with our expectations from the second quarter,” Johnstone said.

Exports from companies such as Atlas Copco AB and Sandvik AB, the world’s two biggest makers of rock drills for the mining industry, and SKF make up half of Sweden’s economic output, making foreign demand for Swedish goods and services key to the Nordic nation’s economic recovery.

Sweden sank into its first recession since 1992 last year as global demand plummeted. Industrial production in the biggest Nordic economy declined at the slowest pace in July since April 2008 after trade demand in parts of Europe and Asia picked up, buoying the country’s export-reliant industrial companies.

The CEO said he’s looking at “a handful” of companies in the bearings, seals and lubricants markets worldwide that he may seek to acquire.

“With the position we’re in, with the strong balance sheet we have and positive cash flow, we’re in a good position to take steps,” Johnstone said. “We have a list of companies we’re looking at, in all the platforms and all the segments.”

SKF is looking at “more important” purchases rather than smaller ones that would strengthen it in narrow areas, and it has “a few billion kronor” on its balance sheet and in credit facilities it can use, Johnstone said. While SKF wouldn’t rule out a share sale if it identifies a bigger acquisition, such a transaction is not on the horizon at the moment, he said.

Founded in Gothenburg in 1907, SKF employs about 42,500 people in more than 130 countries. Swedish truckmaker Volvo AB and automobile maker Volvo Cars trace their roots back to SKF, where Volvo was founded as a subsidiary in the 1920s.

Other News:
SKF Signs a Global Reliability Services Contract with Transocean for 59 Drilling Rigs
SKF Clients Stop Using Inventory, Signaling Rebound
QBC Launched Thin Section Four Point Contact Series of Ball Bearings
PBC Linear Slides out New Stainless Steel Pillow Blocks
SKF's V-belt and Multi-V Belt Range to Complete Its Auxiliary Drive Offer
Schaeffler Corrosion Resistant Steel for Rolling Bearings Increases Machine Availability
NSK to Exhibit at 4th World Tribology Congress
Timken Expands Ability to Offer Engineered Steel Solutions in Asia through Collaboration with Daido