July 16, 2020 / 12:21 PM / 25 days ago

UPDATE 2-Engineer Sandvik sees slow recovery in demand

* Sandvik shares drop 7%

* Demand picked up late June but orders still down steeply y/y

* Expects slow pace of recovery

* Q2 earnings well ahead of forecast (Adds background, detail, analyst comment)

By Johannes Hellstrom

STOCKHOLM, July 16 (Reuters) - Sandvik, the world's biggest maker of metal-cutting tools, on Thursday dented hopes for a quick pick-up in industrial demand, expecting continued weakness in areas such as cars, aerospace and energy.

With shares of the firm up 60% from March lows ahead of second quarter earnings on Thursday, investors were betting that Sandvik would have witnessed a stronger recovery in demand for its tools after widespread lockdowns to stem the coronavirus during April and May.

Sandvik shares fell 7.0% by 1146 GMT.

"Unless there are new lockdowns, the worst should be behind us," Sandvik CEO Stefan Widing said in a statement.

"But we expect the recovery to be slow given the low business activity in several of our key end-market segments, such as automotive, aerospace and energy."

Sandvik, which is also a big supplier of mining gear, said like-for-like order intake fell 23% in the second quarter, slightly more than expected, with sharp falls in automotive and aerospace driving a 35% plunge in its metal-cutting tools unit.

"The key focus of the market going into these results was on the shape of recovery and exit growth rates and it is clear that expectations were for July to be showing a greater improvement," Credit Suisse said in a research note.

Order rates in the metal-cutting tools unit had started to stabilise and improve in late June but were still down 20-25% in the first two weeks of July versus a year earlier, Sandvik said.

The Swedish group is often considered a good gauge of industrial demand due to high shipping volumes of its cutting tools, which have short lead times from order booking to delivery and a wide customer base.

Adjusted operating earnings at the group fell to 2.84 billion crowns ($312.6 million) in the second quarter from 4.97 billion a year ago to come in above the 2.41 billion mean analyst forecast in a Refinitiv poll, helped by cost-savings.

$1 = 9.0860 Swedish crowns Reporting by Johannes Hellstrom; editing by Niklas Pollard and Elaine Hardcastle

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