Volvo Group – 2016 First Quarter Earnings Report

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Volvo Group Press Release  /  April 22, 2016

Maintained profitability on slightly lower sales
 

In the first quarter of 2016, profitability was maintained thanks to a lower cost base and focus on adapting to changes in demand. This was despite slightly lower revenues. Sales amounted to SEK 71.7 billion (US$8.8 billion), a decline of 4%, half of which was due to currency effects. Operating income totaled SEK 5.3 billion (US$650.8 million), representing an operating margin of 7.5%.                                                                                                         

Martin Lundstedt, President and CEO

 

- In Q1, 2016 net sales decreased by 4% to SEK 71.7 billion from SEK 74.8 billion in Q1 2015. Adjusted for currency movements and acquired and divested units, sales decreased by 2%.

- Operating income amounted to SEK 5.344 million, compared with SEK 7.066 million in Q1 2015, excluding restructuring charges of SEK 229 million in Q1 2015.

- Operating income in Q1 2016 includes a capital gain of SEK 885 million from the sale of the external Volvo IT operation, while operating income in Q1 2015 included a capital gain of SEK 2,471 million from the sale of shares in Eicher Motors Limited [India].

- Adjusted for capital gains and restructuring charges (in 2015), operating income amounted to SEK 4.459 billion (US$547.5 million), down from 4.595 billion in Q1 2015, corresponding to an operating margin of 6.2% (versus 6.1 in Q1 2015).

- Currency movements had a negative impact of SEK 417 million (US$51.2 million) on operating income.

- Operating cash flow in the Industrial Operations was negative in an amount of SEK 10.4 billion (US$1.28 billion) (down 1.7%)

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CEO’S COMMENTS

Maintained profitability on slightly lower sales

In the first quarter, profitability was maintained thanks to a lower cost base and focus on adapting to changes in demand. This was despite slightly lower revenues.

Sales amounted to SEK 71.7 billion, a decline of 4%, half of which was due to currency effects.

Operating income totaled SEK 5.3 billion, representing an operating margin of 7.5%.

Truck markets are following the trend we have seen since last year. While truck deliveries declined 5% in total, we succeeded in improving our operating margin in the truck business to 7.8%.

Demand in North America is slowing from high levels. In the first quarter, the organization did a good job in adjusting capacity for lower volumes.

Volumes in South America decrease due to the already weak demand in Brazil. It will be some time before demand improves.

Asia is showing a stable trend.

The European market is performing strongly and order intake increased by 23%. We are pleased that both Volvo and Renault Trucks continue to grow.

Volvo Trucks launched a number of product news in the construction segment.

Volvo CE’s sales decrease marginally. Through a strong focus on profitable product segments and markets, we achieved the same margins as in the first quarter of last year.

The market share continued to increase in the heavy segment. We launched several new products at Bauma, the leading construction industry show. Most attention was focused on our new articulated hauler and our new excavator, both with load capacity increases that will generate significant productivity gains for customers and mean entry into new segments.

Sales developed well for buses coming from strong order intake at the end of last year, and this trend has continued into the first quarter. Despite strong deliveries during the quarter, profitability was adversely impacted by currency effects.

Volvo Penta performed well during the first quarter, with increased sales and strong profitability.

Our financial services operation is an important part of our total offering. Earnings rose slightly compared with the year-earlier quarter, and return on equity was 13.5%.

During the quarter, we reported a capital gain of SEK 885 million from the divestment of parts of our Volvo IT operation. In the long term, the deal with HCL will also generate significant cost savings and allow the Volvo Group to concentrate the remaining IT competence around the core business.

As of this quarter, sales of services and spare parts are disclosed separately. This is an important part of our business, and in combination with our products they create tailor made customer solutions, greatly contributing to the profitability of our customers through increased availability, improved reliability and lower costs. Sales of services and spare parts, excluding financial services, accounted for 23% of net sales.

During the quarter we also implemented our new brand based organization for trucks with clear profit responsibility for each brand and business area. Furthermore, a new governance model is implemented with the aim of further increasing customer focus, moving decisions closer to customers and securing clarity about our areas of improvement. Through continuous improvements we can create further efficiency in important areas such as quality, delivery precision and service offerings and thereby an improvement in customer satisfaction. This will step by step continue to improve the Group’s profitability.

Martin Lundstedt, President and CEO

 

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The Numbers

In the first quarter of 2016, deliveries from Volvo Group’s truck operations amounted to 48,037*, down from 51,657 in Q1 2015.

Volvo brand sales fell to 24,315 units globally and 5,797 in North America, down 8 percent and 41 percent respectively compared with Q1 2015.

Mack brand sales fell to 5,176 units globally and 4,843 in North America, both down 21 percent compared with Q1 2015.

Continuing to lead the group with strong sales, Renault Truck sales rose to 11,222 units globally and 10,065 in Europe, rising 8 percent and 13 percent respective compared with Q1 2015.

UD (Nissan Diesel) brand sales rose to 5,397 units globally and 4,394 in Asia, up 9 percent and 10 percent respectively compared with Q1 2015.

* Excluding Dongfeng, Dongvo (UD China) and VE Commercial Vehicles (Eicher)

 

For a PDF version of the report, please click here: http://www.volvogroup.com/SiteCollectionDocuments/VGHQ/Volvo%20Group/Investors/Financial%20reports/2016-q1/q1_2016_eng.pdf

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FYI - Renault and Volvo worldwide truck deliveries in year 2015, versus the same period in 2014:

January 2015 - Renault up 24% / Volvo down 4%

February 2015 - Renault up 26% / Volvo down 13%

1st quarter 2015 - Renault up 35% / Volvo down 8%

April 2015 - Renault up 12% / Volvo up 9%

May 2015 - Renault up 5% / Volvo down 1%

2nd quarter 2015 - Renault up 7% / Volvo down 4%

July 2015 - Renault up 8% / Volvo down 5%

August 2015 - Renault up 60% / Volvo down 6%

3rd quarter 2015 - Renault up 20% / Volvo down 2%

October 2015 - Renault up 16% / Volvo down 1%

November 2015 - Renault up 54% / Volvo down 10%

4th quarter 2015 - Renault up 29% / Volvo down 7%

Full Year 2015 - Renault up 22% / Volvo down 4%

Renault brand truck sales rose in every month of 2015. Renault brand truck sales rose in excess of 10% during 9 of those months.

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Volvo First-Quarter Earnings Fall on North America Truck Market

Bloomberg  /  April 22, 2016

Volvo AB’s first-quarter operating profit beat analyst estimates as the truckmaker reduced costs by scaling back production in response to slowing demand in North America. The stock rose to an eight-month high.

Earnings before interest and taxes, and excluding capital gains and restructuring costs, amounted to 4.46 billion kronor ($547 million), the Gothenburg-based manufacturer said Friday in a statement. That exceeded the 3.92 billion-krona average of eight analyst estimates compiled by Bloomberg. Based on that measure, the operating profit as a proportion of sales widened to 6.2 percent from 6.1 percent a year earlier. Revenue fell 4.1 percent to 71.7 billion kronor, in part because of currency effects.

The company, which owns the Mack Trucks brand in the U.S., outlined plans in February to reduce North American and Brazilian production in the first quarter following a drop in orders at the end of 2015. U.S. gross domestic product growth probably slowed in the quarter versus the last three months of last year, according to Federal Reserve forecasts, with the Atlanta Fed estimating expansion could have been as low as 0.1 percent.

“Despite the expected market headwind tempering sales, the company managed to keep up margins,” Andreas Zsiga, a credit analyst at Nordea Bank AB, said in a note to clients. “A negative revision of the 2016 North American truck-market outlook was balanced by a positive revision of the European market.”

Volvo rose as much as 4.8 percent and was trading up 3.1 percent at 97.45 kronor as of 9:47 a.m. in Stockholm, the highest price on a closing basis since mid-August. The stock has gained 23 percent this year, valuing the manufacturer at 207.4 billion kronor.

First-quarter net income fell 11 percent to 3.77 billion kronor, with the decline buffered by an 885 million-krona capital gain from the sale of its information-technology operations to HCL Technologies Ltd.

Volvo cut its full-year industry-wide forecast for the North American market 3.8 percent to 250,000 vehicles. “With stagnant freight volumes, increased availability of competitively priced used trucks and less need for fleet renewal, the market is expected to settle on a more normalized level during 2016,” it said. The company’s business in the region “did a good job” of adapting capacity to demand, Chief Executive Officer Martin Lundstedt said at a press conference.

The company also reduced its forecast for Brazil’s market by 14 percent because of a lingering recession there. Volvo is predicting 290,000 industry-wide truck sales in Europe, an increase of 10,000 vehicles from a previous forecast.