July 31 (Bloomberg) -- MAN SE, the German truckmaker controlled by Volkswagen AG, has put a halt on hiring to cut costs as the sovereign debt crisis saps commercial vehicle demand in Europe.
MAN predicted that industrywide sales of trucks and buses in Europe will decline by 5 percent to 10 percent this year, the Munich-based company said today at a press conference. To adjust to lower demand, the manufacturer plans to reduce production in line with the market decline this year and will spread out spending on investments including projects in Brazil and Russia.
“At first glance, the measures look like very little in light of the decline in profitability,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank. “MAN had by far the worst earnings report of any truckmaker and that shows why it’s important to be global.”
Unlike Volvo AB and Daimler AG, MAN is chiefly focused on Europe and Latin America, giving it few options to compensate for declines in those regions with growth elsewhere. Sales of trucks and buses in the European Union dropped 10.8 percent in the first six months of 2012, according to auto industry trade group ACEA. Demand in Brazil fell after the country introduced tighter emissions standards and the economy cooled.
Shares in MAN declined as much as 1.5 percent to 75.80 euros and were down 0.2 percent as of 1:33 p.m. in Frankfurt trading. The stock has risen 12 percent this year, valuing the company at 11.3 billion euros ($13.9 billion).
MAN lowered its 2012 earnings forecast on July 25 after second-quarter operating profit tumbled 50 percent to 218 million euros. Sales declined 9 percent to 3.85 billion euros, and orders fell 10 percent to 3.96 billion euros.
At the commercial vehicles division, operating profit plunged 77 percent to 64 million euros on a sales drop of 12 percent to 2.87 billion euros. MAN’s hiring freeze is targeted at the company’s European commercial vehicles unit, where it reduced the number of temporary workers by half to 900 people.
“We are not satisfied with our operating result and have already taken the appropriate countermeasures,” Chief Executive Officer Georg Pachta-Reyhofen said. “We are focusing closely on cost management.”
MAN forecast its return on sales to drop to about 6 percent, after previously expecting the operating profit margin to slip to about 8.5 percent from 9 percent in 2011. MAN predicted a “slight” decline in revenue this year. The company expects its commercial vehicle revenues to decline as much as 5 percent.
“MAN is too dependent on Europe and Latin America, which are both experiencing difficulties,” Hans-Peter Wodniok, an analyst with Fairesearch in Kronberg, Germany, said prior to today’s statement. “In the coming months, I expect double-digit declines for truck sales in Europe.”
Volkswagen in June raised its holding in MAN to more than 75 percent. The Wolfsburg, Germany-based company has said it is considering seeking a domination agreement as it pushes for tighter cooperation between MAN, Scania and its own commercial vehicle operations.
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