Volvo earnings strong despite North America woes

Volvo, the world's number two heavy duty truck manufacturer, announced on Wednesday an 11 percent rise in fourth quarter net profit owing to rising demand in all markets except North America.

Volvo earnings strong despite North America woes

Net profit for the October-December period rose 11 percent to 4.09 billion kronor (€432.5 million, $632 million), while sales soared 25 percent to 84.5 billion kronor.

Operating profit climbed 11 percent to 5.77 billion kronor.

For the full-year, Volvo’s net profit fell eight percent to 15.02 billion kronor but the company noted that the comparative figure in 2006 had been inflated by a tax refund.

Operating profit rose nine percent to 22.2 billion kronor and sales were up 10 percent to 285.40 billion kronor.

By geographic zone, sales rose 20 percent in western Europe, its main market, and 72 percent in Eastern Europe. The Swedish company sells products under the Volvo, Renault and Mack brands in Europe.

Sales doubled in Asia but plunged 23 percent in North America.

The weakness on the North American market was due to a sales frenzy in 2006 ahead of new US environmental standards for trucks sold as of 2007.

Chief executive Leif Johansson said however a recovery was in sight in the United States and Canada.

“North America is not declining anymore. It will take a while (but) over time we expect North America to start to come back,” he told reporters, adding that 2008 would be “quite reasonable.”

“The Volvo group concluded an intense 2007 with a fourth quarter in which sales and operating income reached record levels,” Johansson said.

“During the year, we carried out several major acquisitions, established a strong presence in Asia, advanced our positions in important product segments, launched many new products and managed widely shifting demand trends in our main markets,” he said.

“Following the acquisitions of Nissan Diesel, Lingong and Ingersoll Rand’s road development division, we now have a significant industrial structure in Asia, with a presence in Japan, China and, when the expected cooperation with Eicher Motors is in operation, also in India,” he said.

“These are rapidly growing markets and we want to be part of that growth,” he added.

Volvo said Asia was now its second biggest market after Europe.

Volvo forecast a five to 10 percent rise in the European truck market from 2007, while demand in North America was expected to remain unchanged.


Sweden’s Volvo regains strength after pandemic puts brakes on earnings

Swedish truck maker Volvo Group was hit by a sharp drop in earnings due to the coronavirus pandemic, but business rebounded at the end of the year.

Sweden's Volvo regains strength after pandemic puts brakes on earnings
Volvo Group CEO Martin Lundstedt. Photo: Adam Ihse/TT

In 2020, the group saw “dramatic fluctuations in demand” due to the Covid-19 pandemic, chief executive Martin Lundstedt said in a statement.

For 2021, Volvo raised its sales forecasts in its trucks division – its core business – in Europe, North America and Brazil.

However, it said it also expected “production disturbances and increased costs” due to a “strained” supply chain, noting a global shortage of semiconductors across industries.

The truck making sector is particularly sensitive to the global economic situation and is usually hard hit during crises.

In March, as the pandemic took hold around the world, Volvo suspended operations at most of its sites in 18 countries and halted production at Renault Trucks, which it owns, in Belgium and France.

Operations gradually resumed mid-year, but not enough to compensate for the drop in earnings.

With annual sales down 22 percent to 338 billion kronor (33.4 billion euros, $40 billion), the group posted a 46 percent plunge in net profit to 19.3 billion kronor (1.9 billion euros).

Operating margin fell from 11.5 to 8.1 percent.

However, the group did manage to cut costs by 20 percent.

“We have significantly improved our volume and cost flexibility, which were crucial factors behind our earnings resilience in 2020,” the group said.

Volvo's business regained strength in the second half of the year.

“Customer usage of trucks and machines increased when the Covid-19 restrictions were eased during the summer and this development continued during both the third and fourth quarters,” it said.

“Both the transport activity and the construction business are back at levels on par with the prior year in most markets.”

For the fourth quarter alone, the company reported a 38-percent rise in net profit from a year earlier.