The SKF headquarters is pictured. File photo

The parent company of the SKF-MRC plant in Falconer is seeing its profits take a hit amidst inflation and supply chain problems.

Operating profits decreased to 2.13 billion crowns from 2.67 billion crowns in the third quarter of 2021. At the same time, costs have increased by 2.9 billion crowns from a year ago.

“We continue to leverage our pricing power and have been successful in increasing prices and pruning our portfolio to further strengthen our business and market position,” said Rickard Gustafson, SKF president and CEO. “These efforts have resulted in another quarter with a growing, positive price/mix contribution of SEK 1.8 billion. As indicated last quarter, cost inflation continues to accelerate, especially in Europe, having a negative impact of SEK 2.9 billion in the quarter. On a positive note, we saw a somewhat reduced inflation rate for steel components and logistics at the end of the quarter. The adjusted operating margin came in at approximately 9%, driven by a challenging cost inflation, negative mix impact from high automotive growth, and our dependence on manufacturing in Europe. Considering our unhedged exposure to cost inflation, we expect to see margin tailwind once inflation and energy prices start to normalize.”

The company has worked to increase prices and cut costs where possible, including closing factories in Avon, Ohio; and plants in Avallon (France), Poggio Rusco and Pianezza in Italy. SKF has also fully automated its assembly and packaging lines in Gothenburg, Sweden. Cost saving moves have cut about 1,000 positions, with the majority coming in Europe.

“We continue to leverage our pricing power and have been successful in increasing prices and pruning our portfolio to further strengthen our business and market position,” said Rickard Gustafson, SKF president and CEO. “These efforts have resulted in another quarter with a growing, positive price/mix contribution of SEK 1.8 billion. As indicated last quarter, cost inflation continues to accelerate, especially in Europe, having a negative impact of SEK 2.9 billion in the quarter. On a positive note, we saw a somewhat reduced inflation rate for steel components and logistics at the end of the quarter. The adjusted operating margin came in at approximately 9%, driven by a challenging cost inflation, negative mix impact from high automotive growth, and our dependence on manufacturing in Europe. Considering our unhedged exposure to cost inflation, we expect to see margin tailwind once inflation and energy prices start to normalize.”

Gustafson said SKF’s industrial segment saw organic growth of 8% driven by industrial distribution, heavy industries and agriculture. The adjusted operating margin in the industrial division was 11%, impacted mainly by material and energy costs. Gustafson said SKF’s strength in the industrial bearings market helped SKF grow in the third quarter, citing extension of a full-service agreement with a leading renewable packaging producer in North America covering bearings, seals, lubrication, application engineering and condition monitoring.

SKF’s automotive division has rebounded strongly from 2021 with an organic growth of 18%, largely driven by light vehicles. The adjusted operating margin was 3%, mainly driven by material and energy inflation. The company’s ceramic bearing offer to the electric vehicle industry continues to strengthen. Gustafson said new contracts have been signed in both China and Europe, which he said is in line with SKF’s strategic portfolio shift because of higher profits in the ceramic bearing market. At the same time, SKF is getting out of low margin and non-strategic businesses such as components for small, combustion-powered passenger cars.

“During the third quarter, we delivered strong organic sales growth of 11%, a clear indication that we are relevant for our customers. Our business in India and the Americas delivered a very strong overall performance and China maintained its solid performance, despite COVID-lockdowns,” Gustafson said. “Our performance in EMEA was hampered by unprecedented cost inflation. We are delivering on our strategic transformation, with double-digit growth in targeted industries, while continuing to transform our portfolio and reduce fixed costs.”