Volvo to Cut Annual Spending by $620 Million to Lift Profit

Volvo AB (VOLVB), the world’s second-largest truckmaker, intends to lower annual spending by 4 billion kronor ($620 million) by the end of the 2015 as part of a broader three-year plan to lift profitability.

Volvo aims to reach the savings target by reducing the number of white-collar workers and boosting production efficiencies, the Gothenburg, Sweden-based truckmaker said in a statement today, without providing details. The cost-reduction program will lead to 5 billion kronor in charges, it said.

Chief Executive Officer Olof Persson set a goal when he took over two years ago to put the manufacturer at the top of the heavy-equipment industry in terms of operating margins. Second-quarter profit fell 58 percent to 3.26 billion kronor as a downturn in Europe and an economic slowdown in China prompted companies to hold off on vehicle purchases.

“This announcement means Persson is serious and making real changes,” David Arnold, an automobile specialist at Barclays Capital in London, said in an e-mail to clients.

The shares gained as much as 1.20 kronor, or 1.2 percent, to 102.50 kronor and were up 0.9 percent as of 2:18 p.m. in Stockholm trading.

The stock has climbed 15 percent this year, valuing the Swedish company at 217 billion kronor.That compares with a 6.5 percent gain in 2013 at Soedertaelje, Sweden-based competitor Scania AB (SCVA) and a 41 percent jump for Daimler AG (DAI), the luxury-car producer that’s also the world’s largest maker of heavy trucks.

The majority of the restructuring charges are expected to impact operating income in 2014, Volvo said. Most of the restructuring measures will take place in the truck unit. Volvo also makes buses, construction equipment and marine engines.

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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