Volvo stock responds to positive report

Swedish truck maker Volvo AB topped the list of winners as the Stockholm stock exchange opened for business on Friday after reporting positive interim figures.

Volvo stock responds to positive report

The OMXS Stockholm Stock Exchange index had climbed one percent to 330.0 by 9.30am, which was a somewhat stronger trend compared with the leading European stock exchanges.

Volvo reported a surprise profit of 2.2 billion kronor ($304 million) for the first quarter, with analysts having forecast a new loss for the bus and truck giant. Volvo stock had shot up almost 10 percent by 9.30am.

“It is a very good report,” said Hampus Engellau at Handelsbanken to news agency TT.

“It shows improvements in all areas, generated by cost savings, a solid pricing structure and indicating that production capacity has been increased, with a closer adjustment to demand,” he continued.

“It is clearly better than expected. We had forecast some improved margins, but not by this much.”

Volvo sales climbed to 58.62 billion kronor in comparison with 56.12 in the corresponding period of 2010.

Analysts had expected pre-tax losses of around 420 million kronor and sales of 55.76 billion, according to a Reuters poll.

All of the firm’s business areas reported profitability during the quarter, CEO Leif Johansson wrote in the report. Credit losses declined but remained relatively high, while a continued global recovery is expected to result in continued improvements.

Demand for trucks continued to climb across the board and orders climbed by 15 percent in comparison with the final quarter of 2009, with a gradual improvement in European markets. In North American markets demand for new trucks remained weak, while demand for used trucks had increased.

“We expect demand for new trucks in North America to improve during the second quarter and the gradual improvements we have seen in Europe to continue,” Johansson wrote in the report.

Volvo AB has therefore retained its prior forecast that the truck market will this year experience total growth of around 10 percent in Europe and 20-30 percent in North America.

Volvo was joined by Haldex, a manufacturer of automotive components, high on the stock market winners list after turning loss into profit in the first quarter. Shares rose 7.5 percent to 67.50 kronor.

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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.