Equipment

Earnings Watch: Daimler, Volvo Profits Lower Amid Slower Truck Sales

April 22, 2016

By Evan Lockridge

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Earnings for two of the world’s largest truck makers moved lower in the first quarter, according to earnings reports issued Friday.

The parent to Freightliner and Western Star, Germany’s Daimler AG (ETR: DAI), saw its net profit fall to 1.40 billion euros ($1.60 billion) from 2.05 billion euros a year earlier, according to the Associated Press.

Revenue rose 2% to 35 billion euros on record high first quarter vehicle sales of 683,885, including Mercedes-Benz cars, a 7% increase.

According to Daimler, the first quarter was affected by sales of certain models of Mercedes-Benz cars while earnings were not helped by the company’s Daimler Trucks, Mercedes-Benz Vans and Daimler Buses divisions. At Daimler Financial Services, earnings increased primarily due to the higher contract volume. Currency exchange-rate effects had an overall negative affect on earnings.

Daimler Trucks’ unit sales fell by 6% in the first quarter from a year ago, to 105,700 vehicles, due to weak market developments, especially in Indonesia, Brazil and Turkey. It saw a 13% increase in the European Union region. In North America, sales of 40,400 trucks were at the prior-year level, while sales in Latin America dropped by 18%. In Japan, the truck division was even with last year, with sales of 12,400 units.

The division’s revenue fell to 8.2 billion euros from 8.4 billion euros a year earlier. However, earnings before interest and taxes improved to 516 million euros from 472 euros.

Looking ahead, Daimler said it expects demand for medium- and heavy-duty trucks to be slightly below the prior-year volume.

“In the North American truck market, the gradual weakening of the industrial sector is likely to have an impact," the company said in its earnings report, saying that demand for Class 6-8 trucks is likely to decrease by approximately 10%. In contrast, sales of Mercedes-Benz cars are expected to continue at a healthy pace.

Volvo North American Truck Orders Fall 54%

The parent to Volvo and Mack trucks, Volvo AB (OMX: VOLVB), saw its first quarter net profit drop to 3.77 billion kronor ($463.3 million), down 11.3% from the same period last year, but higher than analysts’ expectations of 2.92 billion kronor, according to the Wall Street Journal.

Revenue for the Swedish company fell to 71.71 billion kronor from 74.79 billion kronor last year, in line with expectations. Half of this 4% decline was due to the effect of foreign currencies, Volvo said, with lower North American sales also playing a part.

According to Martin Lundstedt, president and CEO, truck markets are following the trend the company saw since last year.

“While truck deliveries declined 5% in total, we succeeded in improving our operating margin in the truck business to 7.8%," he said. “Demand in North America is slowing from high levels. In the first quarter, the organization did a good job in adjusting capacity for lower volumes. Volumes in South America decrease due to the already weak demand in Brazil. It will be some time before demand improves. Asia is showing a stable trend. The European market is performing strongly and order intake increased by 23%.”

Volvo said in North America its orders were down 54% compared to the same quarter last year and deliveries fell by 33% to 10,740 trucks.

“The decline in both orders and deliveries is an effect of the market correction, with dealers focusing on reducing their inventories, as well as a result of the comparison with an extraordinarily high quarter last year for both orders and deliveries,” Volvo said in its earnings report. “The production rates in the group’s North American production system were reduced in the quarter to meet the lower demand and allow for inventory reduction at dealers.”

The news follows Volvo announcing earlier that in intends to focus more heavily on Europe and Asia, where its unit sales increased by 16% and 7% during the first quarter, respectively.

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