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Truckmaker Volvo profit tops forecast as supply chain squeeze eases

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By Reuters
Truckmaker Volvo profit tops forecast as supply chain squeeze eases
FILE PHOTO: The logo of Volvo is seen on the front grill of a Volvo truck in a customer showroom at the company's headquarters in Gothenburg, in this September 23, 2008 photo. REUTERS/Bob Strong/File Photo   -   Copyright  Bob Strong(Reuters)

By Esha Vaish and Johannes Hellstrom

STOCKHOLM (Reuters) – Truckmaker Volvo beat first-quarter operating profit forecasts on Wednesday as it sold more higher priced vehicles and margins benefited from an easing of supply chain pressures.

Adjusted operating income at the Swedish maker of trucks, construction equipment, buses and engines rose to 12.70 billion crowns (£1.05 billion) from 8.30 billion a year earlier, and beat the mean forecast of 10.19 billion in a poll of analysts.

AB Volvo has enjoyed buoyant trade in recent years as truck buyers renewed fleets starved of investment during the last downturn, but its forecast for lower demand in China and Europe this year had fuelled concerns the cycle may have peaked.

The company, which sells trucks under brands Volvo, Mack, Renault and UD Trucks, struck a reassuring tone on Wednesday, maintaining its outlook for truck markets in 2019.

Order intake of trucks fell for a second consecutive quarter to 45,884 units, missing analysts’ expectation of 57,227 units, but Volvo pointed to low intake in North America where its books had been close to full for 2019 before the quarter began.

Handelsbanken Capital Markets analyst Hampus Engellau said the confirmed guidance indicated key markets remained strong, while he expected the company to see further benefits once it has opened its 2020 North American order book.

“This is a lot about Volvo giving a good market outlook,” said Engellau, who has a 165 Swedish crown target price and “buy” rating on the stock.


“After a period with good markets, a strong service business and high volume flexibility are key for us to be more resilient to changes in the business environment,” CEO Martin Lundstedt said in a statement.

Besides a slowing market, Volvo faces potential recalls and regulatory penalties after admitting last year some engines could be exceeding nitrogen oxides emission limits due to a faulty part, as well as lawsuits after the EU ruled it had been involved in a truck cartel.

Volvo did not provide any consequential updates on these matters on Wednesday.

The truckmaker has also been grappling with supply chain bottlenecks and wage pressures in the United States, but said margins improved during the quarter, helped by better pricing and mix of goods sold, higher sales and improved efficiencies.

Adjusted operating margin grew to 11.8 percent from 9.3 percent a year earlier, beating expectations of 10.3 percent. Margins were also ahead of Volvo’s long-term target of 10 percent.

(Reporting by Esha Vaish and Johannes Hellstrom; Editing by Niklas Pollard and Mark Potter)