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Volvo Profit Misses Estimates on China, Brazil Declines

Volvo AB (VOLVB), the world’s second-largest truckmaker, reported second-quarter earnings that missed analyst estimates as declining demand in Brazil and China prompted production cutbacks.

Volvo fell the most in almost nine months in Stockholm trading after posting earnings before interest and taxes of 3.56 billion kronor ($521 million) for the quarter, less than the 4.28 billion-krona average of eight estimates compiled by Bloomberg. Revenue fell 0.2 percent to 72.6 billion kronor.

Chief Executive Officer Olof Persson has vowed to transform the company into the most profitable heavy-truck maker by realigning production of the Volvo and Renault brands in Europe, cutting overhead costs and expanding abroad. Volvo, which was already scaling back truck manufacturing in Brazil, said it reduced construction-equipment production in China in response to a drop in orders.

“Results could have been better,” said Hans-Peter Wodniok, a Kronberg, Germany-based analyst with Fairesearch. “The construction-equipment business is disappointing and weighs on profits. Order intake hasn’t been getting out of the starting gate as worldwide infrastructure spending seems restrained.”

Volvo fell as much as 6.3 percent, the steepest intraday drop since Oct. 25, and was trading down 5.2 percent at 87.5 kronor at 11:40 a.m. That pared the stock’s gain this year to 3.6 percent, valuing the company at 186.7 billion kronor.

Efficiency Program

Persson has laid out a groupwide efficiency program targeted at improving operating profit by 9 billion kronor by the end of 2015, excluding 5 billion kronor in spending on reorganization.

Second-quarter truck orders dropped 6 percent to 52,974 vehicles as deliveries rose 2.4 percent to 53,223, Volvo said. Orders for construction equipment plunged 22 percent and deliveries fell 18 percent. Net income climbed 23 percent to 2.47 billion kronor, while Ebit rose 9.2 percent.

The company today retained forecasts for all regional truck markets for this year. European sales were held back as some customers bought vehicles at the end of last year before more stringent emission regulations came into effect. Truckmaking in Brazil was halted for some days in reaction to lower demand amid a slowdown in South America’s biggest economy.

Chinese Reductions

A decline in construction-equipment demand in China accelerated during the quarter, and “we have acted quickly to ensure that production and inventory levels as soon as possible are being balanced with demand,” with the measures having “a considerable negative impact” on earnings, Persson said in the statement. The industry will “take several quarters” to adjust to the lower demand, the CEO said on a conference call.

Volvo has allowed contracts with 1,184 employees to lapse since the job-cutting program started in the final months of 2013, and it plans to reduce the number of office workers by 4,400 by the end of this year. The workforce totaled 94,228 employees and 14,419 temporary workers at the end of June.

The company said in June that it will halt manufacturing at its Russian truck plant in Kaluga for “a number” of weeks in the coming months in reaction to slowing economic prospects following that country’s territorial disputes with Ukraine.

Swedish competitor Scania AB, a unit of carmaker Volkswagen AG (VOW), said today that second-quarter operating profit fell 1 percent to 2.02 billion kronor as sales were unchanged at 22.8 billion kronor. Truck deliveries fell 8 percent, dragged down by a 43 percent drop in Latin America.

(An earlier version of this story was corrected to fix Scania's earnings figure.)

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

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net Tom Lavell

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