Sweden’s Lax Covid Policy Is No Slam Dunk for Industrial Sector

(Bloomberg) -- Sweden’s approach to coping with Covid-19 has been embraced the world over by advocates against restrictive lockdown measures as what’s best for economies. For some of the country’s biggest industrial companies, the strategy hasn’t been a panacea.

The sector has had a decidedly mixed start to the quarterly earnings season. While truck manufacturer Volvo Group is holding up surprisingly well, others including Assa Abloy AB, the world’s largest lockmaker, are having a hard time recovering.

Industrial companies loom large in Sweden, making up more than a third of the country’s benchmark stock index. But big heavyweights such as Volvo, Assa Abloy, Atlas Copco AB and Sandvik AB get 5% or less of revenue from their home country. While the nation has sustained one of the least-drastic economic blows from the coronavirus in Europe, its outward-looking businesses are “at the mercy” of the pandemic being tamed overseas, according to Johnson Imode, a Bloomberg Industries analyst.

“Atlas Copco looks best positioned given its services focus, while more cyclical players in Sandvik and Volvo face a longer comeback,” Imode said in an interview.

Sweden refused to close down schools, shops, restaurants and gyms to contain the new coronavirus, a controversial strategy that the country’s top epidemiologist admitted resulted in too many deaths. Its public-health authorities have made the case that a softer approach than complete lockdowns will be more sustainable over time, and its experiment has been praised by the likes of Michael Ryan, the leader of the World Health Organization’s health emergencies program, and Tesla Inc.’s Elon Musk, who threatened to pull the electric-car maker out of California over its shutdown.

Here’s a breakdown of how Sweden’s industrial companies are doing:

Atlas Copco

Atlas Copco saw overall demand for its equipment and services improve from the prior three months and the industrial giant is proposing a dividend be paid in the fourth quarter.

The industrial-tool maker’s adjusted operating profit was 5.02 billion kronor ($573 million) in the third quarter, down 15% from a year ago but beating the average estimate for 4.81 billion kronor. Although global economic development remains uncertain, demand for the group’s products and services can be sustained, the company said.

Sandvik

The engineering group’s adjusted operating profit came in at 3.49 billion kronor, down 24% but slightly ahead of consensus. Chief Executive Officer Stefan Widing warned that its aerospace and oil-and-gas segments face a tough 2021.

BI’s Imode says the company may struggle to make material inroads in the fourth quarter because of the slow revival at its machining solutions unit and tough comparisons for its materials technology division.

Volvo Group

Volvo’s earnings were well ahead of expectations, with adjusted operating profit of 7.22 billion kronor.

The truckmaker’s 61% rise in third-quarter orders should indicate its sales recovery can be sustained through the end of the year, but costs will increase as more workers return, which may stifle earnings momentum, Imode said.

Alfa Laval

The engineering company’s adjusted Ebitda fell 20% from a year ago to 1.71 billion, in line with estimates. Analysts at Citigroup expect weakness in the oil and gas division hampering earnings next year. A deteriorating backlog and dim prospects for service business are weighing on the company’s outlook, according to BI.

Assa Abloy

The lock manufacturer and service provider’s adjusted operating profit was 3.59 billion kronor, down 7.7% but ahead of consensus estimates. Some of Assa Abloy’s business areas within its global technologies division are seeing a “double negative effect on the bottom line” from Covid-19, CEO Nico Delvaux said in an interview.

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