Bloomberg News

Volvo Earnings Plunge 84% as Europe Drop Prompts Job Cuts

February 06, 2013

Volvo AB, the world’s second-largest truckmaker, said fourth-quarter profit dropped 84 percent because of the cost of cutting jobs and reorganizing production in response to shrinking economies in Europe and the U.S.

Earnings before interest and taxes fell to 1.12 billion kronor ($177 million) from 6.96 billion kronor a year earlier, Gothenburg, Sweden-based Volvo said in a statement today. Profit missed the 2.47 billion-krona average of eight analyst estimates compiled by Bloomberg. Sales declined 2.2 percent to 303.6 billion kronor.

Volvo, which ranks second to Daimler AG in global truck sales, posted 990 million kronor in costs and eliminated 2,000 jobs for cutting back construction-equipment manufacturing in Sweden, ending busmaking there and closing a truck plant in Japan that served the U.S. market. The economy of the 17 nations sharing the euro went into recession in the third quarter, and U.S. gross domestic product shrank in the fourth.

“The first quarter of 2013 will also be difficult as a result of the low order intake in many markets during the fourth quarter of 2012,” Chief Executive Officer Olof Persson said in the statement. “Profitability will be affected by low capacity utilization, high spend levels in research and development and costs associated with the launch of new products.”

Consolidating Production

Fourth-quarter charges included 600 million kronor for reorganizing Volvo’s European truck-sales network, 280 million kronor for consolidating production in Japan, including spending on shutting a plant, and 110 million kronor for revamping bus operations, the Swedish company said today. A gain of 254 million kronor was posted following the sale of Volvo’s aerospace-engine unit to GKN Plc, it said.

“It’s tough for the company to cut costs so quickly,” said Mattias Eriksson, a Stockholm-based equity strategist at Nordea Bank AB with a buy recommendation on the stock. “They’re trying to get the costs down gradually, and hopefully demand is improving as well.”

Volvo, which also makes Mack trucks in North America and Renault-brand heavy vehicles in Europe, reiterated a forecast that the North American truck market will about match the 250,000 deliveries estimated for 2012.

European industrywide sales last year probably totaled 221,000 trucks, Volvo said, a decline from an earlier estimate. The company forecast industrywide sales in the region of 230,000 vehicles in 2013, sticking to an earlier prediction.

2013 Forecast

Globally, “we expect market conditions to gradually improve during the course of 2013, when economic growth across the world gains momentum,” Persson said.

Net income in the fourth quarter dropped 83 percent to 793 million kronor, Volvo said. The company plans an unchanged dividend of 3 kronor a share.

The manufacturer’s deliveries fell 15 percent to 58,626 trucks in the quarter, while orders dropped 9.6 percent to 52,145 vehicles. Europe accounted for 40 percent of deliveries and 36 percent of orders.

The region’s commercial-vehicle market in December contracted to the lowest level since October 2009, according to the Brussels-based regional industry group ACEA. Full-year registrations of heavy trucks in Europe declined 9.4 percent to 214,086 vehicles.

Top Target

Volvo said Jan. 28 that a 5.6 billion-yuan ($899 million) plan to buy a 45 percent stake in the truck unit of Chinese manufacturer Dongfeng Motor Group Co. will help Volvo overtake Daimler in worldwide commercial-vehicle sales. Volvo has a target of completing the transaction, which will form a new joint venture, within a year.

Part of Volvo’s push outside its traditional markets includes a plan outlined in September to invest almost 800 million kronor in a truck-cab factory in Kaluga, Russia, that will start production in 2014.

Scania AB, the Swedish truckmaker controlled by Volkswagen AG, reported a 29 percent plunge in profit in 2012 because of lower sales and production in Europe, which accounted for 45 percent of its deliveries. Volkswagen is pressing for closer collaboration between Scania and MAN SE, the Munich-based truckmaker that Volkswagen controls and is seeking to buy out. Daimler is scheduled to release earnings figures tomorrow.

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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