Equipment

Earnings Watch: Volvo Says Net Profit Falls, Announces Fine in EU Probe

July 19, 2016

By Evan Lockridge

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The Swedish parent to truck brands Volvo, Mack and others reported its second quarter profit slid from a year ago due to lower sales in many parts of the world and has downwardly revised its expectations in North America.

AB Volvo said on Tuesday net profit dropped to 1.9 billion kronor ($222 million) from 5.2 billion in the second quarter of 2015 as revenue fell 7% to 79 billion kronor. Adjusted operating earnings rose to 6.13 billion kronor from a year ago’s 5.98 billion kronor, beating a forecast for 5.64 billion kronor in Reuters poll of analysts.

“In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development," said Martin Lundstedt, AB Volvo President and CEO. "Sales decreased by 7% to 78.9 billion kronor. Despite this, the underlying operating income increased to 6.1 billion kronor, corresponding to an operating margin of 7.8%."

Adjusted for currency movements and acquired and divested units, sales decreased by 3%.

According to Marketwatch, Volvo’s order intake in the second quarter totaled 45,422 vehicles, down 8% from 49,551 in the same period last year. Order intake declined in all markets except for Africa and parts of the Pacific region. However, in terms of the value of net sales, all regions saw declines except for Europe, where they improved 10%

Bloomberg news reports, in North America, Volvo truck orders fell 29% in the second quarter. Volvo is expecting industry-wide truck sales on the continent to total 240,000 this year, about 10,000 less than its April estimate.

The news came as Volvo also announced it has reached a settlement with the European Commission putting an end to a long-running E.U. antitrust investigation.

As part of the settlement Volvo will pay a fine of 670 million euros, corresponding to 6.3 billion kronor.

According to the company, the amount is mainly covered by provisions made in 2014 and 2016, totaling 650 million euros or 6.1 billion kronor.

“The commission case was already more than five years under way. Without the settlement we would have been facing many more years of proceedings, with an uncertain outcome. We are now able to look forward and focus on our business”, said Lundstedt,

The anti-trust investigation concerns the time between 1997 and January 2011 and involves the Volvo Group as one of six manufacturers. The focal point of the case is the coordination on gross list prices, but also the introduction of new emission-related technologies, according to a statement from the European Union.

“While we regret what has happened, we are convinced that these events have not impacted our customers. The Volvo Group has always competed for every single transaction”, said Lundstedt. “We have taken these events very seriously from the outset and our full cooperation with the commission resulted in a very substantial reduction in the fine.”

Volvo is one of five European truck makers being hit with record fines totaling around 3 billion euros or $3.3 billion, with the others including Daimler, Paccar’s DAF, Iveco and MAN.

 

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