Volvo Cuts North American Market Outlook as Orders Slump

Updated on
  • Truck orders in North America fell 29% in second quarter
  • Volvo boosts core truckmaking margin to 10% of sales

Volvo AB cut its outlook for the North American truck market for the third time this year after stagnant freight volumes and excess inventory drove orders in the region down by nearly one-third in the second quarter.

Truck orders in North America fell 29 percent, and manufacturers as a whole will probably sell about 240,000 vehicles there this year, the Gothenburg, Sweden-based company said Tuesday in a statement. That’s 10,000 less than its previous forecast and would be 20 percent fewer than in 2015.

Slowing demand in the U.S. and the Middle East and recession in Brazil have wreaked havoc on truckmakers’ expectations for the year. Daimler AG, the biggest commercial-vehicle manufacturer, cut its trucks forecast in May, saying profits will be “significantly lower.” Volvo, which owns the Mack Trucks brand in the U.S., started cutting manufacturing in North America and Brazil in February and promised further reductions on Tuesday.

Thanks to production cuts, Volvo boosted truck profit excluding charges to 10 percent of sales from 7.7 percent a year earlier. The improved operating margin despite a weaker market in the U.S. is a “sign that even less favorable markets can be managed,” Equinet Bank analyst Holger Schmidt wrote in a note.

Volvo rose 1.5 percent to 90.10 kronor at 1:03 p.m. in Stockholm. The stock has gained 14 percent this year.

Clearing Inventory

U.S. dealers are clearing excess truck inventory more quickly in a “positive sign” for truckmakers, Chief Executive Officer Martin Lundstedt told analysts. It will take about a year to run down surplus stock, he said Tuesday.

Separately, European Union regulators announced a record 2.93 billion euros ($3.24 billion) in fines Tuesday to penalize manufacturers for fixing truck prices over 14 years. Volvo and its Renault trucks brand owe 670.4 million euros, the European Commission said. The figure is in line with the 650 million euros Volvo set aside.

Volvo had been working through a restructuring program to cut annual spending this year by 10 billion kronor ($1.17 billion) from 2012 levels. As part of its cost-reduction program, Volvo cut its workforce in the past year by 6.7 percent, or about 7,000 employees.

Second-quarter earnings before interest and taxes, and excluding capital gains, a provision related to the EU truck fines and restructuring costs, increased to 6.13 billion kronor from 5.98 billion kronor a year earlier, as cost-cutting helped offset the intensifying slowdown. That beat the 5.5 billion-krona average of 11 estimates compiled by Bloomberg.

Group sales fell 7 percent to 78.9 billion kronor. Orders for construction equipment dropped 17 percent. On top of the market slowdowns the trucks unit is facing, the smaller construction division is also suffering from tepid demand as low oil prices and price declines for other commodities delay new projects.