Volvo Holds Out For Stability – US-FOREX.US
Volvo is still in trouble. The world’s second-largest maker of trucks skidded on Tuesday to a wider-than-expected operating loss, as sales fell almost 60% in Europe.”The second quarter of 2009 remained difficult in terms of earnings in the wake of the exceptionally rapid decline in demand that followed the crisis in the financial system,” said Volvo Chief Executive Leif Johansson. The company said it saw signs of demand stabilizing but it stuck to its previous forecast that the market for heavy trucks would drop by 30-40% in its North American market and by at least 50% in Europe. “Volvo is saying that the rate of decline is holding at more or less the same levels. That doesn’t mean that demand is growing and everybody is happy,” said Johan Trocme, an analyst with Nordea Markets in Stockholm. “Demand continues to collapse but there won’t be a freefall.”
There is as yet very little indication about when Volvo might see an improvement in demand for its trucks and its smaller construction business. Volvo posted a 32% increase in order intakes in the second quarter compared to the first three months of the year, despite being down 51% from a year earlier.It’s not all bad news for investors: underlying earnings were better than expected and were not negatively impacted by one-off charges, which were bigger than anticipated, according to Trocme. Volvo was particularly hurt by costs linked with an agreement on retiree health benefits with its union. Volvo, which manufactures heavy-duty trucks under the Renault, Mack, Nissan Diesel and Eicher brands, as well as its own name, swung to an operating loss of 6.9 billion Swedish kroner , down from a 7.2 billion Swedish kroner profit a year ago. Analysts in a Reuters poll expected the operating loss to come in below the 4.7 billion Swedish kroner mark.
But Johansson said that the company, which is no longer related to the carmaker of the same name after it was acquired by Ford in 1999, “was successful in reducing inventories, which contributed to a positive development in working capital.”Volvo’s cash flow is still a negative 2.9 billion Swedish kroner in the quarter but significantly narrower than a negative 15.7 billion Swedish kroner in the first quarter. Volvo has managed to keep cash tight by aggressively reducing inventories. The company said it cut inventories by 5.8 billion Swedish kroner in the second quarter. To deal with the slump, Volvo has also cut around 21,000 jobs since the start of the year.
Shares of Volvo
, which have climbed 26% so far this year, fell 0.5%, to 52.75 Swedish kroner on Tuesday afternoon.Truck maker Scania, Volvo’s domestic rival, is due to post second-quarter results later this week and Germany’s Daimler
and MAN are reporting later this month.
Thomson Reuters contributed to this article.