Profits at Volvo Rise Despite Drop in Truck Orders
Volvo AB said the krona’s decline on currency markets helped boost third-quarter operating profit even as truck orders, a predictor for future sales, dropped 15%.
Earnings excluding interest, taxes and costs related to restructuring surged 75% to 5.1 billion kronor ($604 million), Gothenburg, Sweden-based Volvo said in a statement Oct. 23. Advance sales contracts for trucks declined to 42,648 vehicles, while orders for construction equipment dropped even more, falling 34% to 7,898 units.
Volvo, the world’s second-biggest truckmaker, is restructuring to become more profitable amid pressure from investor Cevian Capital AB while contending with market declines in China and Brazil.
The manufacturer remains less than halfway to reaching a goal of cutting 10 billion kronor in annual costs by next year, as savings on a 12-month rolling basis reached 4.2 billion kronor in the quarter.
Commercial-vehicle manufacturers including Daimler AG, the world’s biggest truck producer, have been counting on demand in Europe and North America to sustain profit and make up for weakening economic growth in China and a recession in Brazil. While Volvo reiterated a forecast for North America’s truck market to expand 15% in 2015, demand in the region also is declining, “albeit from a very high level,” acting CEO Jan Gurander said in the statement.
“They’ll struggle to meet their efficiency target,” said David Jacobsson Cederberg, a Stockholm-based analyst at Pareto Securities. “They’ll get there for the most part, but probably not all, because of the change in demand conditions,” he said, citing a mix of a more positive outlook for Europe, the negative guidance on North America and poor prospects for next year for construction equipment.
Third-quarter sales jumped 9% to 73.3 billion kronor, and the operating margin widened to 6.9% of revenue from 4.3%.
Truck deliveries rose 3%, bolstered by growth of 13% in Europe and 10% in North America. Exchange-rate effects added 831 million kronor to operating profit. The company said it is evaluating selling its Arrow Truck Sales used-vehicle unit in North America, which includes a customer finance portfolio worth about $250 million.
Daimler AG said Oct. 22 that truck deliveries rose 2% to 128,500 vehicles for an operating return on revenue of 8.2%, above its target. The Stuttgart, Germany-based company tempered its forecast to a “slight” increase in sales this year compared with a previous goal of a “significant” gain as recovery in Brazil remains distant and demand in Indonesia weakened.
