Volvo AB to Cut Production on Lower North American Truck Demand

  • Company sees 10 billion-kronor cost cuts complete by year-end
  • Volvo truck orders dropped 20 percent in the fourth quarter

Volvo AB, the second-biggest truckmaker, cut this year’s forecast for the North American market by 7 percent, and said it will reduce production after demand weakened at the end of 2015.

Fourth-quarter earnings excluding interest, taxes and costs related to restructuring were 5.38 billion kronor ($640 million), compared to a loss of 1.43 billion kronor a year earlier, Volvo said Friday in a statement. Sales rose 3 percent to 79.6 billion kronor.

Volvo shed 5,000 jobs as part of a cost-cutting program to spend 10 billion kronor less this year than it did in 2012. The effort comes as the North American market, the company’s second-biggest, is expected to shrink to 260,000 units this year. Daimler AG, the biggest truckmaker, pointed toward the slowdown Thursday as the reason its earnings will probably be flat this year.

“The question is whether this will be enough in the current market,” Hans-Peter Wodniok, an analyst at Fairesearch GmbH & Co. KG, said by phone from Kronberg, near Frankfurt. “They’re likely to announce another round of cost cuts this year.”

Volvo rose 0.3 percent to 78.90 kronor at 9:21 a.m. in Stockholm, taking this year’s gains to 0.1 percent compared with an 8 percent loss in the OMX Stockholm 30 Index.

China Flat

With mostly new trucks on the roads in the U.S., sales there may decline for the next year or two, Wodniok said. Europe may partly compensate for those declines. Volvo is predicting that the European heavy-duty truck market will surpass that of North America this year as the world’s second-biggest, behind China. It’s predicting a flat market in China this year after last year’s 26 percent drop.

“During the first quarter we will adjust production to the new lower level of demand in North America and Brazil,” Martin Lundstedt, who took over as chief executive officer in October, said in the statement.

Advance sales contracts for trucks declined 20 percent to 49,088 vehicles in the fourth quarter, while orders for construction equipment dropped 18 percent. The company is proposing a dividend of 3 kronor per share, unchanged from last year.

Operating income excluding restructuring charges at Volvo’s truck unit was 5.15 billion kronor during the fourth quarter, compared with a loss of 542 million kronor last year. Its construction equipment business had a loss of 191 million kronor, compared with a previous loss of 815 million kronor.

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