During the third quarter of 2012, sales for the Volvo Group were impacted by weakening global demand, causing the company to adjust production rates downward in several parts of the company, it said last week. Net sales decreased by 6 percent to SEK 69.1 billion (about U.S. $10.3 billion) from SEK 73.3 billion in the same period a year ago.
Third-quarter operating income amounted to SEK 2.93 billion (U.S. $437.6 million), a nearly 50-percent decline from SEK 5.77 billion in 3Q11, including a non-recurring negative impact amounting to SEK 1.01 billion (U.S. $158.5 million), whereof SEK 560 million related to a restructuring in UD Trucks and SEK 500 million to an adjustment of warranty reserves.
In the third quarter basic and diluted earnings per share for Volvo Group were SEK 0.68 (U.S. $0.10), a significant decline from SEK 1.89 a year ago.
“In the short term, we have a tough quarter ahead of us to manage the consequences of the slow demand in the third quarter,” said Olof Persson, president and CEO. “However, with the production adjustments we are currently implementing, we believe we will have the right level of capacity going into 2013. At the same time we continue to have a high speed in the execution of the activities that are part of our new strategic objectives aimed at improving the overall profitability of the Volvo Group.”
Third-quarter net sales for the Volvo Construction Equipment business decreased 9 percent to SEK 13.27 billion (U.S. $1.98 billion) from SEK 14.57 billion in the same period a year ago. Order intake was also affected with the value of the order book on Sept. 30 being 24-percent lower than on the same date in 2011.
This slowdown of global demand in the third quarter of 2012 also weighed on profitability, with operating income for Volvo CE of SEK 650 million (U.S. $97.2 million) down from the SEK 1.44 billion reported in the same period of 2011. This also dented Volvo CE’s operating margin, which at 4.9 percent was below the 9.9 percent achieved in Q3 2011.
“The lower economic activity and the uncertainty about the future are impacting customers’ willingness to invest in new equipment,” said Pat Olney, president of Volvo CE. “As a consequence we have reduced production in our facilities and managed to reduce both our own inventories and those at our dealers.”
Market conditions for the full year 2012 show few signs of change in the short term. The European market is expected to be down by 0 to 10 percent (previous estimate: flat), while North America is expected to increase by between 15 and 25 percent (unchanged forecast). South America meanwhile is still on course to rise by between 0 and 10 percent and Asia (excluding China) remains expected to rise by between 0 and 10 percent. Demand in China itself is projected to fall in 2012 by between 25 and 35 percent, down further from the 15 to 25 percent previously forecast.