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Volvo sees no truck market growth after profit slump
October 24, 2012 / 5:46 AM / in 5 years

Volvo sees no truck market growth after profit slump

STOCKHOLM (Reuters) - World number two truck maker Volvo (VOLVb.ST) said it expects no growth in European and U.S. markets next year, after orders and earnings plunged in the third quarter.

A logo is pictured on the Volvo booth during the second media day of the 82nd Geneva Car Show at the Palexpo Arena in Geneva March 7, 2012. REUTERS/Denis Balibouse

The European debt crisis and a faltering U.S. economic recovery have sapped demand for heavy-duty trucks.

Volvo (VOLVb.ST), which makes trucks under the Renault, Mack, UD Trucks and Eicher brands as well as its own name, on Wednesday said third-quarter orders fell 25 percent from a year ago, more than market forecasts for a 17 percent fall.

That compared poorly with domestic rival Scania SCVb.ST which capped its fall in orders at 10 percent in the quarter as its absence from the U.S. market left it untouched by the downturn there. Its orders in Europe also proved resilient.

“After Scania this (Volvo) will be received with disappointment in the market today,” Handelsbanken analyst Hampus Engellau said. “This is in part due to the weaker order bookings for Volvo in Europe compared to Scania, but also due to the weaker profitability.”

Gothenburg-based Volvo’s operating profit slumped to 2.9 billion crowns ($435.68 million) from a year-ago 5.8 billion, well below a mean forecast for 4.5 billion in a Reuters poll.

The truckmaker said its plants in Europe and the United States were operating at less than full capacity, but did not give details.

Volvo shares slid in opening trade by about 7 percent. They are up roughly 11 percent so far this year, underperforming the European-wide auto industry index .SXAP which has risen almost 16 percent.

“In the short term, we have a tough quarter ahead of us to manage the consequences of the slow demand in the third quarter,” said Chief Executive Olof Persson, whose group is the dominant global player alongside Germany’s Daimler (DAIGn.DE).


Volvo, which also makes buses, engines and construction equipment, said it expected European and North American truck markets to remain on about the same level next year as in 2012, with U.S. demand likely to be weak at the start of the year.

The company said U.S. customers were being cautious ahead of this month’s presidential election and the outcome of federal budget discussions which if unsuccessful would trigger sweeping spending cuts in January.

For Brazil, where government incentives for truck purchases have begun to boost demand, the market was seen edging up to about 95,000 trucks next year from a forecast 90,000 this year.

For 2012, Volvo stood by its outlook for all markets, implying an industry-wide contraction of about 5 percent in Europe and growth of just over 15 percent in North America.

Volvo competes with Paccar (PCAR.O) and Navistar (NAV.N) in North America.

The coming months are a pivotal time for the group, which is reorganising its business in a bid to rival the sector-leading profitability of Scania and launching a new Volvo truck model series, its biggest ever investment.

Volvo said a reorganisation of its dealer network in Europe, the Middle East and Africa would cost about 900 million crowns with expenses gradually booked starting in the fourth quarter.

The company said third-quarter earnings were hit by 1.06 billion in one-off charges from restructuring at its UD Trucks business and an adjustment of reserves set aside to cover warranties. Analysts had on average expected extraordinary items of 537 million crowns. ($1 = 6.6562 Swedish crowns)

Additional reporting by Johannes Hellstrom, editing by Patrick Lannin

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