Volvo Group – 2016 2nd Quarter Earnings Report

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Volvo Group Press Release  /  July 19, 2016

“In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development. Sales decreased by 7% to SEK 78.9 billion. Despite this, the underlying operating income increased to SEK 6.1 billion, corresponding to an operating margin of 7.8%,” Martin Lundstedt, President and CEO.

• In Q2 2016 net sales decreased by 7% to SEK 78.9 billion (84.8). Adjusted for currency movements and acquired and divested units sales decreased by 3%.
• Operating income in Q2 2016 amounted to SEK 6,130 M (5,979), corresponding to an operating margin of 7.8% (7.1), excluding a provision of SEK 2,334 M related to the EU competition investigation in Q2 2016 and restructuring charges of SEK 799 M and a capital gain of SEK 2,137 M from the sale of shares in Eicher Motors Limited in Q2 2015.
• Currency movements had a negative impact on operating income of SEK 317 M.
• Operating cash flow in the Industrial Operations was positive in an amount of SEK 6.9 billion (8.6).

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The Numbers

In the second quarter of 2016, sales (deliveries) from Volvo Group’s truck operations amounted to 52,670* units, down 5 percent from 55,613 units in Q2 2015.

Volvo brand truck sales (overall) fell to 28,255 units globally, down 9 percent from 30,997 units in Q2 2015.

Volvo brand truck sales in North America plunged to 6,786 units, down 39 percent from 11,208 units in Q2 2015.

Volvo brand truck sales in Europe rose to 14,430 units, up 17 percent from 12,343 units in Q2 2015.

Mack brand truck sales (overall) plunged to 5,588 units globally, down 22 percent from 7,160 units in Q2 2015.

Mack brand truck sales in North America plunged to 5,192 units, down 21 percent from 6,547 units in Q2 2015.

Mack brand truck sales in South America crashed to 157 units, down 54 percent from 338 units in Q2 2015.

Mack brand truck sales in Africa/Oceania (includes Australia, New Zealand) fell to 238 units, down 11 percent from 267 units in Q2 2015.

Continuing to save the day for Volvo Group with stunning results, Renault Truck sales rose to 13,650 units globally and 12,304 in Europe, rising 12 percent and 23 percent respective compared with Q2 2015.

UD (Nissan Diesel) brand sales fell to 5,177 units globally and 4,147 in Asia, down 1 percent and 2 percent respectively compared with Q2 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/group/global/en-gb/_layouts/CWP.Internet.VolvoCom/NewsItem.aspx?News.ItemId=152052&News.Language=en-gb

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Volvo beats earnings forecast, sees U.S. market weaken

Reuters  /  July 19, 2016

Swedish truckmaker Volvo reported better than expected second-quarter earnings on Tuesday as cost cuts and rising European sales helped fortify it against slumping U.S. demand for commercial vehicles.

Heavy trucks, where Volvo is competing with Germany's Daimler and Volkswagen, are benefiting from strong demand across Europe while battling downturns across the Atlantic.

Volvo, which sells trucks under the Mack, Renault and UD brands as well as its own name, scaled back its outlook for North America, saying it expected industry wide sales of 240,000 trucks, down from a forecast for 250,000 given in April.

Weaker markets in the United States and also China, where sales of construction equipment are falling, will test the new leadership team's skill in boosting profitability.

"In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development," said CEO Martin Lundstedt, a former Scania boss appointed last year. Scania had long boasted some of the best profit margins in the business.

Gothenburg-based Volvo said order intake of its trucks fell 8 percent in the second quarter compared with a 1 percent drop seen by analysts. A 29 percent fall in North American truck orders led the decline.

Volvo shares rose 0.8 percent by 0756 GMT (03:56 a.m. EDT), outpacing a 0.7 percent fall in the in the STOXX Europe 600 Industrial Goods & Services Index .SXNP. The stock is up 12 percent so far this year compared with a 2 percent drop for the index.

"The earnings are really good, and what stands out is primarily the 10 percent operating margin in trucks despite them scaling back output in North America," Handelsbanken Capital Markets analyst Hampus Engellau said. "This is exactly what one wanted to see."

Lundstedt has come on board as Volvo begins reaping the benefits of a 10 billion Swedish crown ($1.17 billion) cost cutting drive intended to make the sprawling group less prone to sharp swings in profitability as cyclical truck markets periodically slump.

The group said adjusted operating earnings rose to 6.13 billion crowns from a year-ago 5.98 billion, beating a mean forecast for 5.64 billion in Reuters poll of analysts.

It reported adjusted operating margin of 7.8 percent compared with a year-ago 7.1 percent and the 7.0 percent seen by analysts.

"The results tells us that Volvo are on track to boost its earnings generation capacity also when demand is not great," said Danske Bank analyst Bjorn Enarson.

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Volvo's CEO: "We need to recruit"

Affars Varlden  /  July 19, 2016

Volvo may recruit 400-500 people at the Tuve plant in Gothenburg, CEO Martin Lundstedt has announced.

Simultaneously, the company's profit compared with the same period last year.

Truck manufacturer Volvo AB reported a pretax profit of 3.453 billion kronor for the second quarter. That compares with profit of 6.362 million kronor in the same period last year.

Analysts had on average expected a profit of 2.807 million kronor.

Volvo's CEO Martin Lundstedt satisfied with the results for the second quarter.

“We had another good quarter where we improved our underlying profitability and it is particularly gratifying that we reached an operating margin of ten percent in trucks, Lundstedt said.

Turnover amounted to 78.89 billion kronor, compared to 84.783 billion kronor a year earlier.

Volvo also announced that the company will reduce the number of employees in North America by about 300 people.

“We need to adjust the number of employees to achieve a better balance between production levels, inventory levels and demand”, said Lundstedt.

“However, we need to recruit 400-500 people for our Tuve truck plant in Gothenburg. We are very happy”, said Lundstedt.

Deliveries of trucks fell to 52,670, down from 55,613 in the second quarter last year. At the same time, truck orders received fell to 45,422 from 49,551 a year earlier.

Analysts had on average expected an order intake of over 49,000 trucks.

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Volvo Cuts North American Market Outlook as Orders Slump

Bloomberg  /  July 19, 2016

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.

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Volvo Says Net Profit Falls, Announces Fine in EU Probe

Heavy Duty Trucking  /  July 19, 2016

The Swedish parent to truck brands Volvo, Mack and others reported its second quarter profit slid from a year ago due to lower sales in many parts of the world and has downwardly revised its expectations in North America.

AB Volvo said on Tuesday net profit dropped to 1.9 billion kronor ($222 million) from 5.2 billion in the second quarter of 2015 as revenue fell 7% to 79 billion kronor. Adjusted operating earnings rose to 6.13 billion kronor from a year ago’s 5.98 billion kronor, beating a forecast for 5.64 billion kronor in Reuters poll of analysts.

“In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development," said Martin Lundstedt, AB Volvo President and CEO. "Sales decreased by 7% to 78.9 billion kronor. Despite this, the underlying operating income increased to 6.1 billion kronor, corresponding to an operating margin of 7.8%."

Adjusted for currency movements and acquired and divested units, sales decreased by 3%.

Volvo’s order intake in the second quarter totaled 45,422 vehicles, down 8% from 49,551 in the same period last year. Order intake declined in all markets except for Africa and parts of the Pacific region. However, in terms of the value of net sales, all regions saw declines except for Europe, where they improved 10%

In North America, Volvo truck orders fell 29% in the second quarter. Volvo is expecting industry-wide truck sales on the continent to total 240,000 this year, about 10,000 less than its April estimate.

The news came as Volvo also announced it has reached a settlement with the European Commission putting an end to a long-running E.U. antitrust investigation.

As part of the settlement Volvo will pay a fine of 670 million euros, corresponding to 6.3 billion kronor.

Volvo says the amount is mainly covered by provisions made in 2014 and 2016, totaling 650 million euros or 6.1 billion kronor.

“The commission case was already more than five years under way. Without the settlement we would have been facing many more years of proceedings, with an uncertain outcome. We are now able to look forward and focus on our business”, said Lundstedt,

The anti-trust investigation concerns the time between 1997 and January 2011 and involves the Volvo Group as one of six manufacturers. The focal point of the case is the coordination on gross list prices, but also the introduction of new emission-related technologies, according to a statement from the European Union.

“While we regret what has happened, we are convinced that these events have not impacted our customers. The Volvo Group has always competed for every single transaction”, said Lundstedt. “We have taken these events very seriously from the outset and our full cooperation with the commission resulted in a very substantial reduction in the fine.”

Volvo is one of five European truck makers being hit with record fines totaling around 3 billion euros or $3.3 billion, with the others including Daimler, Paccar’s DAF, Iveco and MAN.