Monday 5 December 2016

Volvo's profit beats expectations as cost cuts pay off

Published 19/07/2016 | 08:30

The Volvo XC90
The Volvo XC90

Swedish truckmaker Volvo posted forecast-beating quarterly earnings on Tuesday as years of cost cuts and strong deliveries in Europe helped fortify it against slumping demand for commercial vehicles in the United States.

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Volvo and rivals Daimler and Volkswagen, with its array of truck brands, have been buoyed by rising demand across Europe over the past year while contending with a drop in orders in the United States and Brazil.

The company, the first of Europe's major truckmakers to report second-quarter results, scaled back its outlook for North America, saying it expected industry-wide sales of 240,000 trucks versus its April forecast for 250,000.

But while the market may face more challenges, earnings held firm.

Adjusted operating earnings at Gothenburg-based Volvo rose to 6.13bn Swedish crowns ($716.18m) from a year-ago 5.98bn, beating a mean forecast for 5.64bn in Reuters poll of analysts.

"In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development," CEO Martin Lundstedt, a former Scania boss appointed last year, said in a statement. Volvo sales fell 7pc in the quarter.

Volvo, which sells trucks under brands such as Mack, Renault and UD brands as well as its own name, said order intake of its trucks fell 8pc in the second quarter versus the 1pc decline seen by analysts.

Lundstedt has come on board as Volvo begins reaping the dividends of a 10bn crown cost cutting drive intended to make the sprawling group less prone to plunges in profitability as highly cyclical truck markets periodically slump.

The company, which besides weak U.S. demand for trucks is also facing a downturn for construction equipment in China, posted an adjusted operating margin of 7.8pc versus a year-ago 7.1pc and the 7.0pc seen by analysts.

Reuters

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