Equipment

Earnings Watch: 4th Quarter Profit for Volvo Jumps 86%

February 01, 2017

By Evan Lockridge

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The parent company to truck and engine manufacturers Volvo and Mack on Wednesday reported sharply higher income for the final quarter of 2016. However, the Bulldog brand last year reported its weakest number of deliveries in several years.

Profit for Volvo AB, also known as Volvo Group, was 4.82 billion Swedish kronor, or $551 million, according to MarketWatch, up 86% from 2.59 billion kronor in the fourth quarter of 2015 and better than analysts were expecting. Revenue increased 3.7% to 82.56 billion kronor.

For all of 2016, Volvo said net income fell by 12.4% to 13.2 billion kronor or $2 billion, while revenue decreased 3% to $301.9 billion kronor.

“Our profitability improved with an adjusted operating margin of 7% for the full year 2016,” said Martin Lundstedt, president and CEO. “This reflects our ability to manage volume changes in different regions as well as continued cost reductions and productivity improvements. The fourth quarter followed the pattern of previous quarters with somewhat improved profitability on lower volumes.”

He said that in Europe truck demand continues to be “high due to good freight volumes combined with low fuel prices and interest rates that support our customers’ profitability.” On the other hand, the North American market was not as good with retail deliveries down 19% in 2016 compared to the exceptionally strong market in 2015.

“The downward correction in the North American highway segment continued, but with some signs of stabilization as the industry’s inventory of new trucks came down to more healthy levels,” Lundstedt said. “However, there is still an overhang of used trucks in the market that will continue to dampen demand.”

Overall, Volvo AB delivered 50,489 trucks in the fourth quarter, which is 10% less than the preceding year. However, he pointed out that in 2016 the company completed a restructuring plan to have a significantly lower structural cost while divesting of two operations.

Worldwide deliveries of Volvo brand trucks fell 8% in the fourth quarter from a year earlier to 27,934 while declining 9% for all of 2016. The declines at Mack were much greater, 42% in the fourth quarter to 4,119 trucks, while deliveries fell 31% for all of last year versus 2015.

According to The Morning Call of Allentown, Pennsylvania, the results were not unexpected, considering Mack's performance in 2015 was its strongest since 2006.

“Because of the reduced demand in 2016, Mack scheduled several down weeks at its 1-million-square-foot Lower Macungie Township facility, where all Mack trucks built for the North American market and export are assembled,” the newspaper reported. “The most recent temporary layoff week for workers at the plant came during the week of Jan. 2, which was added after Mack reported a 40 percent decline in third-quarter deliveries.”

Volvo AB also reported quarterly gains in net sales of its construction equipment and buses and in its marine business along with its financial services operations.

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