Volvo AB, the world’s second-largest truckmaker, reported third-quarter profit that missed analysts’ estimates as sales dropped in South America and Asia, and it incurred costs for shutting a production line.
Volvo fell the most in 14 months in Stockholm trading after the Gothenburg, Sweden-based manufacturer said net income plunged 64 percent from a year earlier to 1.37 billion kronor ($206.3 million). Earnings were less than the 2.83 billion-krona average of 12 analyst estimates compiled by Bloomberg. Sales decreased 6.2 percent to 67.1 billion kronor.
“This is a lousy result,” Mattias Eriksson, an equity strategist at Nordea Bank AB with a buy recommendation on Volvo, said by phone. “Both trucks and construction equipment performed worse than expected. The question is, how much of the problem is with the company and how much is with the market.”
The manufacturer, which completed the sale of its aircraft-engine business in early October, is overhauling the truck division to boost operating profit as a proportion of sales by 3 percentage points by 2015. Chief Executive Officer Olof Persson wants Volvo to rank at the top of the heavy-equipment industry in terms of operating margins, shifting focus away from pure sales growth as it competes with larger truckmaker Daimler AG.
Volvo dropped as much as 8.5 percent percent to 82.55 kronor, the biggest intraday slide since Aug. 18, 2011, and was trading down 6.4 percent at 9:21 a.m. That pared the stock’s gain this year to 12 percent, valuing the commercial-vehicle and construction-equipment manufacturer at 179.5 billion kronor.
The company, whose truck brands include Volvo and Renault in Europe, Mack in the U.S. and UD in Japan, reiterated a forecast from July that European industrywide sales in 2012 will fall to 230,000 vehicles, while the North American market will increase to 250,000 trucks. That would amount to a 5.1 percent drop for Europe, based on the 242,400-vehicle market that Volvo estimated for the region in 2011, and a 16 percent increase in North America from last year’s 216,000 deliveries.
“We have a tough quarter ahead of us to manage the consequences of the slow demand in the third quarter,” CEO Persson said in today’s statement. “However, with the production adjustments we are currently implementing, we believe we will have the right level of capacity going into 2013.”
The company is “ready to adjust production further” should vehicle markets continue to slow, Persson said today at a press conference in Stockholm.
Third-quarter revenue at the truckmaking division fell 6.5 percent and operating profit plunged 57 percent. The unit’s operating margin narrowed to 3.8 percent of sales from 8.4 percent a year earlier. Revenue at the construction-equipment business dropped 8.9 percent, while earnings fell 55 percent. The margin fell to 4.9 percent from 9.9 percent.
One-time charges in the quarter included 560 million kronor for reorganizing UD Trucks, including halting the division’s production for the U.S. market, and a 500 million-krona provision for warranties, Volvo said. Currency movements helped earnings by 594 million kronor.
Volvo’s truck orders declined 25 percent from a year earlier to 45,272 vehicles, Volvo said. Deliveries fell 7.8 percent to 50,511 trucks, with the biggest contractions in South America and Asia.
Swedish competitor Scania AB reported third-quarter net income of 1.5 billion kronor on Oct. 22, and said its order decline slowed to 10 percent from a 14 percent drop the previous three months. Daimler plans to publish figures tomorrow, and Munich-based MAN SE is scheduled to report results Oct. 30.