Volvo Seeking Margin Boost Pushes for Truck-Sale Gains

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Bloomberg / March 8, 2014

Volvo must keep increasing sales as it cuts costs, CEO Olof Persson said today at an investor conference in New York.

The Swedish manufacturer needs to sustain “organic growth,” said Persson, who is reducing white-collar headcount and cuts research and development spending. Persson said he remains committed to the goal for Volvo’s truck, bus and construction-equipment units eventually to generate the highest operating margins in their industries.

“We need to make sure that we don’t lose sight of that during the year of efficiency,” Persson said.

The strategy includes a reorganization costing 5 billion kronor ($784 million) to achieve annual savings by 2015 of 4 billion kronor. Volvo is cutting 4,400 office jobs this year and streamlining European production, affecting another 900 employees.

The company, which owns the Volvo and Renault commercial-vehicle brands in Europe and Mack Trucks in the U.S., sold its unprofitable North American construction-machinery rental unit in January and is reviewing the construction-equipment product line amid “unsatisfactory” earnings performance.

Full-year earnings before interest and taxes plunged 60 percent to 7.14 billion kronor as sales declined 9.1 percent to 272.6 billion kronor, with the margin narrowing to 2.6 percent from 6 percent in 2012, Volvo said on Feb. 6. That compares with an Ebit return on sales of 5.2 percent at Daimler Trucks, the world’s biggest producer of the vehicles.

Volvo has gained about 17 percent this year in Stockholm trading, valuing the company at 212 billion kronor.

Volvo today reiterated its Americas truck-market predictions for this year. Industry-wide North American truck deliveries will rise to about 250,000 vehicles from 230,000 units in 2013. Demand in Brazil is predicted to be largely unchanged at 105,000 trucks this year.

European registrations of new commercial vehicles of all weight classes climbed 4 percent in January to 137,600 units, marking the fifth consecutive month of gains, according to data compiled by Brussels-based ACEA industry group.

Volvo’s European truck sales in the last months of 2013 were inflated as customers sought cheaper models before vehicles went on sale with more expensive technology to meet stricter European Union emissions rule coming into force this year. Volvo is lowering first-quarter production in line with the muted demand. The order backlog at the Renault truck brand fell in advance of a changeover to new-generation models.