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Volvo Posts Surprise Quarterly Profit Drop


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Bloomberg / October 25, 2013

Volvo reported a surprise drop in operating profit, sending the stock down the most in a year.

Earnings before interest and taxes fell 18 percent to $380 million (2.4 billion kronor) from $462 million (2.92 billion kronor) a year earlier, Gothenburg, Sweden-based Volvo said in a statement today. Profit was less than the $499 million (3.15 billion-krona) average of 12 analyst estimates compiled by Bloomberg.

In response to the declining profit, Volvo outlined plans to eliminate 2,000 administrative jobs, or 1.8 percent of its workforce, under a program announced in September to generate annual cost savings of 4 billion kronor through 2015. Volvo reported 7.5 percent growth in third-quarter truck orders, lagging behind jumps of 29 percent at local competitor Scania and 33 percent at industry leader Daimler.

Volvo is “unlikely to be forgiven for the miss this time, especially as it looks like they are trailing peers in terms of orders and the margin improvement plan has shifted two years to the right,” David Arnold, a London-based industry specialist at Barclays Capital, said today in a report to clients.

Third-quarter net income fell 0.9 percent to 1.39 billion kronor, Volvo said. Sales slumped 4.9 percent to 64.9 billion kronor. A 1 percent drop in truck-division revenue contrasted with a 4.1 percent increase in deliveries to 43,248 vehicles. Orders amounted to 44,224 trucks.

Volvo shares fell as much as 7.4 percent, the steepest intraday drop since Oct. 24, 2012, and was trading down 6.3 percent at 88.45 kronor at 1:12 p.m. in Stockholm. That pushed the shares to a 0.4 percent decline this year, valuing the truckmaker at 186.3 billion kronor.

The company’s truck brands include Volvo and Renault in Europe, Mack in North America and UD in Asia. Currency effects reduced third-quarter operating profit by 1.07 billion kronor, Volvo said.

Gains by the krona and the euro hurt third-quarter sales and profit across Europe’s manufacturing sector, including at Scania and Renault, the former owner of the namesake heavy-vehicle brand now held by Volvo.

Volvo said on October 16 that it will scale back production in Europe as part of the earnings-improvement project, shifting manufacturing among plants in different countries and affecting another 900 employees, including 700 in Sweden. Volvo hasn’t specified whether those workers will be dropped or transferred, saying it’s in talks with unions on their future.

The reorganization is “the largest change in the European manufacturing system ever done” by Volvo, Chief Executive Officer Olof Persson said today at a Gothenburg press conference. Business in the quarter was “tough,” he said. The efficiency program is starting to show its first positive effects, with research and development spending and variable costs per truck declining, he said.

Earnings were held back by spending on new models and by simultaneous production of old and new generations of vehicles, Volvo said. The FH product line was updated starting last year, and new versions of Renault trucks were presented in June. During the third quarter, UD began production in Bangkok of the Quester, the brand’s first model developed and produced in Southeast Asia specifically for that region.

The phase-in of production to only new models will be completed in the first quarter of 2014 at the Volvo brand and by mid-year at the Renault division, Persson said.

Scania said on October 23 that third-quarter orders and deliveries were helped by truck purchases in Europe in advance of pollution regulations taking effect in 2014. Net income fell because of the krona’s gain and vehicle-price pressure.

Daimler said its truck division’s Ebit in the period rose 4 percent as deliveries gained because of the so-called pre-buying in Europe and a market recovery in Brazil.

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