Volvo First-Quarter Orders Rise 11% on Europe Renewals

Volvo AB, the world’s second-largest truckmaker, posted its first order growth in six quarters as customers in recession-plagued Europe prepared to replace vehicles in advance of stricter emissions rules.

Volvo rose to a three-week high after saying sales contracts in the first three months of 2013 increased 11 percent from a year earlier to 61,045 trucks, the Gothenburg, Sweden-based manufacturer said today in a statement.

Sales of commercial vehicles in Europe dropped for a 14th consecutive month in February amid a recession in the 17 nations using the euro. Volvo introduced a new version its FH freighter line in 2012, and said today that transport and construction companies in the region may be buying vehicles before tighter environmental rules lead to a shift to more expensive models.

“Order intake is clearly improving” and “that’s a positive,” Mattias Eriksson, a Stockholm-based equity strategist at Nordea, said by phone. “They seem to be doing better in handling the situation than in the severe downturn in 2008-2009.”

Volvo gained as much as 3.8 percent to 93.7 kronor, the highest intraday price since April 4, and was trading up 2 percent at 11:11 a.m. in Stockholm. The stock has gained 3.7 percent this year, valuing the company at 196 billion kronor ($29.8 billion).

Ebit Plunges

First-quarter earnings before interest and taxes plunged 92 percent to 482 million kronor from 6.24 billion kronor a year earlier, Volvo said today. The net loss was 304 million kronor compared with profit of 4.05 billion kronor in the 2012 period. Group revenue declined 25 percent to 58.3 billion kronor, and deliveries fell 23 percent to 38,416 trucks.

Daimler AG said yesterday that Ebit in the period at its truck unit, the world’s biggest maker of the vehicles, plunged 69 percent because of the western European sales decline and investment spending in India and China. Swedish competitor Scania AB’s operating profit fell 17 percent.

“This should definitively be the low point for the year,” Nordea’s Eriksson said. “The second quarter will be better than the first with the improving order intake, which allows them to adjust production and leads to less under-absorption” of costs.

Earnings at Volvo were hurt by 1.9 billion kronor in costs, including 1.5 billion kronor at the truckmaking operation, because of low capacity utilization, the company said today.

Orders Continue

Volvo continued to see “good demand” for trucks in the first weeks of the second quarter, and it’s gradually adding production in Europe, Chief Executive Officer Olof Persson said at a press conference in Stockholm. He reiterated a forecast that the truck market in the region should improve in the second half of the year.

First-quarter operating profit at the truck unit dropped 97 percent to 101 million kronor, while earnings at the construction-equipment business fell 76 percent to 500 million kronor, Volvo said. Currency effects reduced profit by 168 million euros at the manufacturing operations, it said.

The Swedish company faces growing competition as Volkswagen AG, Europe’s biggest carmaker, seeks a larger presence in the heavy truck industry through its control of Scania and Munich-based MAN SE. Stuttgart, Germany-based Daimler is underscoring ambitions to maintain leadership with the appointment of car-industry veteran Wolfgang Bernhard to run the truck unit.

Changeover ‘Challenge’

“The second quarter of 2013 will pose a challenge for us and our suppliers, with respect to the changeover to new products and the ramp-up of the industrial system to higher volumes,” Persson said in the statement. “At the same time, we are focusing on our strategy with all the important measures aimed at improving the overall profitability” of the group

Introduction costs for new models and spending on research and development will peak in the second quarter, Persson told journalists, while burdens from under-utilization of factories will cease. “By the end of the quarter we’ll have a good balance between demand and output,” he said.

Scania said earlier this month that it’s adding sales and service offerings in emerging markets and preparing for growth opportunities in the longer term as truck fleet operators in Europe increasingly need to replace older vehicles. Sales contracts announced this year include a 709-bus order in Russia and 81 dump trucks for a power-plant construction project in Colombia.

Volvo, which also makes Mack trucks in North America and Renault-brand heavy vehicles in Europe, reiterated forecasts that industrywide North American truck deliveries this year will about match the 250,000 vehicles sold in 2012, with the European market probably increasing 4 percent to 230,000 trucks and Brazilian demand totaling 105,000 trucks.