SKF Earnings: Industrial Portfolio Pruning Yields Profit Margin Benefit Amid Weak Bearings Market

Investors welcomed narrow-moat SKF’s fourth-quarter 2023 result, with SKF shares trading some 5% higher at the time of writing, ostensibly warming to strong operating margin progression for the industrial bearings segment, which edged out our and the market’s expectations. As we’d anticipated fourth-quarter sales weakened in industrial bearings—SKF’s largest segment, accounting for about 85% of group earnings—as slowing economic growth resulted in lower customer demand in all regions. Still, SKF’s efforts to focus on higher-profit margin bearings categories—and to exit more commoditized, lower-profit margin segments of the industrial bearings market—bore fruit, with the industrial segment EBIT margin rising to 15.4% in 2023, up 210 basis points year on year. Consequently, SKF delivered group full-year 2023 EBIT of about SEK 13.0 billion, beating consensus and our forecast by 2% and 3%, respectively.