Volvo upbeat despite Japan impact warning

Swedish truck maker Volvo Group reported strong first quarter earnings on Wednesday, although the firm warned that the Japan disaster could impact its second quarter.

Volvo upbeat despite Japan impact warning

From January to March, the net profit of the Volvo Group – which consists of Volvo Trucks, Renault Trucks and Mack – more than doubled compared to the same period last year, to 4.1 billion kronor ($674 million).

Analysts surveyed by Dow Jones Newswires had expected a net profit of 3.4 billion kronor.

The earnings were pushed up by a strong sales, which jumped 22 percent to 72 billion, beating analyst forecasts of 71 billion.

“We note that our mature markets are recovering, with continuing sharp sales increasing and favorable profitability in our operations in the emerging markets of Brazil, China and India,” chief executive Leif Johansson said.

On a year-to-year basis, demand for trucks jumped 40 percent.

“In Europe, demand for new trucks is developing well, with positive trends for used trucks,” Johansson said.

The company raised its estimated sales for both Europe and North America to between 230,000 and 240,000 vehicles for each region this year, up from a previous forecast of 220,000.

Johansson explained the US market was driven both by a need to replace ageing trucks with newer, fuel efficient ones, and by “a positive trend in the US economy and corresponding higher freight volumes.”

He added investments in South America and Asia were paying off, “with record sales and highly favorable profitability in such countries as India and Brazil”.

The company said it expected second-quarter earnings to be negatively affected by the aftermath of the Japan earthquake and tsunami.

Production in Japan at UD Trucks, another Volvo brand, was interrupted on March 11th and started up again “at a limited level” on March 28th, Johansson said.

“We have a number of suppliers in Japan that are having difficulties in restarting their production, which means that we anticipate considerable disturbances to the production at UD Trucks during the second quarter,” he explained.

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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.