Volvo stalls as demand slump reduces output

City A.M. Reporter
TRUCK maker Volvo yesterday warned of a rough start to 2013 after weak demand in its main markets left its factories running at half speed and pushed it into a much heavier than expected earnings fall in the fourth quarter.

Sweden’s Volvo, which only weeks ago laid claim to having dethroned German Daimler as the world’s biggest heavy truck maker after forming a joint venture with Chinese group Dongfeng Motor Group said weak orders at the end of 2012 meant the first quarter would be difficult.

“Profitability will be affected by low capacity utilisation, high spend levels in research and development and costs associated with the launch of new products,” chief executive Olof Persson said in a statement.

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

Heavy-duty truck makers have run into tougher times in recent quarters as the deep economic downturn in Europe and sluggish activity in North America has weighed heavily on the highly cyclical demand for commercial vehicles.

Volvo’s operating earnings tumbled to 1.12bn Swedish crowns (£112.7m) from 6.96bn a year ago, well below a mean forecast for 2.19bn seen in a poll of analysts.

Earnings were hit by weak capacity use at many of its plants as well as restructuring charges totalling 990m crowns, compared to the 565m hit expected by analysts.

Volvo has been cutting shifts due to weaker demand, but stood by a forecast for flat markets in Europe and North America. However, it raised its forecast for the Brazilian market, where government incentives have boosted demand, by 10,000 trucks to about 105,000.