Volvo Doubles Job Cuts as Truck Demand Unlikely to Expand

Volvo AB, the world’s second-biggest truckmaker, will more than double an administrative job-cut plan to 4,400 positions to meet a cost-savings target for 2015 amid limited prospects for vehicle-market growth this year.

Volvo rose the most in a year after saying the cutbacks, widened from an earlier program to eliminate 2,000 jobs, will largely be completed this year. Reorganization costs will total 5 billion kronor ($766 million), and annual savings by 2015 will amount to 4 billion kronor, the Gothenburg, Sweden-based company said in a statement today, reiterating previous targets.

Chief Executive Officer Olof Persson has a goal for Volvo to generate the highest operating margins in the world’s heavy-equipment industry. The strategy includes selling a North American construction-machinery rental unit in a deal completed Jan. 31. Volvo, which plans to maintain an unchanged dividend, said today that it’s reviewing its construction-equipment unit’s product range amid “unsatisfactory” profit performance.

“The job cuts are in line with their restructuring plans,” and investors will appreciate that Volvo is keeping its dividend payment steady, Thomas Besson, a Paris-based analyst at Kepler Cheuvreux, said by phone.

Volvo gained as much as 5.9 percent to 90.5 kronor, the biggest intraday jump since Feb. 6, 2013, and was trading up 5 percent at 9:28 a.m. in Stockholm. That pared the 12-month decline in the shares to 7.3 percent.

Earnings Fall

Fourth-quarter earnings before interest and taxes fell 17 percent to 996 million kronor from 1.2 billion kronor a year earlier, Volvo said. Revenue rose 8.2 percent to 76.6 billion kronor, with the Ebit margin narrowing to 1.3 percent of sales from 1.7 percent.

Excluding exchange-rate shifts that hurt profit by 1.01 billion kronor and a 1.5 billion-krona writedown on the sale of the Volvo Construction Equipment Rents business, Ebit jumped 41 percent to 3.08 billion kronor from 2.19 billion kronor.

“This year will be characterized by efficiency improvements, including a reduction in activities and costs, as well as personnel reductions,” Persson said in the statement. “This will play an important part in the work to achieve the group’s strategic and financial targets.”

The job cuts amount to 4.6 percent of the company’s workforce of 95,533 permanent employees as of the end of 2013.

Emissions Rules

Fourth-quarter deliveries rose 15 percent to 61,613 trucks as customers sought vehicles before Volvo introduced more expensive technology to meet tighter European Union emissions regulations, dubbed Euro 6, that took effect in January. Growth in the period helped pare the full-year decline in deliveries to 2 percent. Truck orders increased 12 percent in the quarter.

The North American heavy-truck market amounted to a little more than 236,000 vehicles last year, while industrywide demand totaled 240,000 deliveries in Europe, versus a forecast of 230,000 units, and almost 104,000 in Brazil, Volvo said. The company said it’s sticking to forecasts that the industry will deliver about 230,000 trucks in Europe, 250,000 in North America, 700,000 in China and 105,000 in Brazil in 2014.

The company owns the Volvo and Renault truck brands in Europe, Mack in North America and UD and Eicher in Asia, as well as busmakers Prevost and Nova. Demand in Europe was held back by an 18-month recession in countries sharing the euro that ended in the second quarter.

Volvo said on Oct. 16 that it will scale back production in Europe as part of the earnings-improvement project, shifting manufacturing among plants in different countries and affecting another 900 employees, including 700 in Sweden. Volvo hasn’t specified yet whether those workers will be dropped or transferred as talks with unions are still pending.

The $1.1 billion sale of Volvo Construction Equipment Rents to Platinum Equity LLC will support the Swedish company’s first-quarter cash flow and net financial debt, the truckmaker said on Feb. 3.

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