AB SKF (publ) (SKFRY) Q3 2025 Earnings Call Transcript

AB SKF reported Q3 2025 net sales of SEK 22.4 billion, achieving 2% organic growth after eight consecutive quarters of decline, primarily driven by its Industrial business which saw a 4% organic increase and a 15.5% adjusted operating margin. The group's adjusted operating margin improved to 12.3% despite significant FX headwinds and challenging market conditions, attributed to strong commercial execution and cost control. The Automotive separation is progressing well, with key IT cutovers completed and the Indian entity ready for listing by year-end, targeting operational readiness for a mid-2026 spin-off. The company also highlighted progress on its Industrial rightsizing initiative and investment in a new Super-precision bearing center. For Q4, SKF expects organic sales to remain relatively unchanged year-over-year, with continued significant currency headwinds and a revised full-year tax rate of 28% due to FX.

Analysis

AB SKF reported a significant turnaround in Q3 2025, achieving 2% organic growth, ending an eight-quarter streak of declines, primarily driven by its robust Industrial business which posted nearly 4% organic growth. The group's adjusted operating margin improved to 12.3% from 11.9% year-over-year, largely due to strong commercial execution and cost control, with the Industrial segment contributing 90% of adjusted operating profit at a 15.5% margin.

Strategic initiatives are progressing, with the Automotive separation on track for a mid-2026 operational readiness, marked by successful IT cutovers and the Indian entity's readiness for listing. However, the quarter saw SEK 755 million in one-off costs, mainly for the Automotive separation, impacting cash flow. The company also inaugurated a new Super-precision bearing center in Italy, targeting growth in high-tech industrial verticals.

Despite these positives, SKF navigates a challenging market with persistent volatility and geopolitical uncertainty. Significant FX headwinds (-1 percentage point on Q3 margin, estimated -SEK 650 million impact on Q4 operating profit) continue to pressure results, though tariff impacts are largely compensated. Q4 guidance projects organic sales to remain relatively unchanged year-over-year, with underlying market dynamics similar to Q3, and a revised full-year tax rate of 28% due to FX.

Key Decisions for Investors

• Monitor the progress and financial implications of the Automotive separation, particularly details from the upcoming Capital Markets Day, for clarity on future segment valuations and capital allocation
• Assess the ongoing impact of significant FX headwinds, which are projected to reduce Q4 operating profit by SEK 650 million, and factor this into profitability forecasts
• Evaluate the sustained strength of the Industrial segment, given its 15.5% adjusted operating margin and contribution to organic growth, as a key driver of overall company performance
• Watch for signs of a broader market demand recovery, especially in EMEA and Americas volumes, as current organic growth is still heavily influenced by price/mix and specific regional tailwinds rather than widespread market expansion