Volvo AB Shares Hit 10-Year High on Construction-Equipment Salesby
Truck order intake jumps 11% on growth in North America
Volvo leaves 2017 commercial-vehicle market forecast unchanged
Volvo AB’s shares jumped to a 10-year high after cost cuts and higher construction-equipment sales propelled a 58 percent surge in the truckmaker’s first-quarter earnings.
The stock rose as much as 7.6 percent to 144 kronor, the highest intraday price since July 24, 2007, and was up 6 percent at 9:39 a.m. in Stockholm. Adjusted operating profit climbed to 7.03 billion kronor ($798 million). Orders for commercial vehicles and machinery for construction sites and mining also gained, Gothenburg, Sweden-based Volvo said Tuesday in a statement, boding well for future revenue.
“This was an extremely strong quarter, with the benefits of the restructuring over the past couple of years coming through,” said Jose Asumendi, a London-based analyst with JPMorgan Chase & Co. “Those orders are going to translate into sales in the coming quarters.”
Volvo last year completed a reorganization to cut in annual spending by 10 billion kronor from 2012 levels. The manufacturer also moved early to reduce truck output in North America after an industrywide contraction following a period of high demand. While order intake was strong, Volvo recorded a 5 percent drop in deliveries during the quarter, and left its forecasts for key markets unchanged. The adjusted earnings beat the 5.46 billion-krona average of analyst estimates compiled by Bloomberg.
European demand for trucks has been buoyed by improved economic prospects, including German business confidence at a six-year high. At the same time, demand in the U.S. has flagged, though this may turn around as President Donald Trump has a goal of lifting growth in the world’s largest economy to 3 percent.
New truck orders rose 11 percent in the quarter, helped by jumps of 27 percent in North America and 31 percent in Asia, Volvo said. Sales contracts for construction equipment increased 34 percent, bolstered by growth in Asia and Europe.
Truck-market weakness in North America looks to be “bottoming out,” while a recovery in the mining industry has boosted the construction-equipment business, Chief Executive Officer Martin Lundstedt said in the statement. Volvo has canceled planned “stop days” at its plants in the region, which will operate as normal during the second quarter, because of the stronger demand, he told analysts in a webcast.
Volvo’s return on sales during the quarter widened to 9.1 percent from 6.2 percent a year earlier. That compares with 8.4 percent profitability at Daimler AG’s trucks unit in the period. Daimler, the world’s biggest maker of commercial vehicles, outlined plans early this month to scale back the workforce at its German plants to cut 400 million euros ($434 million) in fixed costs.