Volvo Construction Equipment experienced a major first-quarter decline in sales and income as the world market for heavy, compact and road machinery continued to drop. Volvo’s net sales in the first quarter plunged 46 percent to SEK 8.17 billion (about U.S. $1 billion), compared with SEK 15.1 billion in the first quarter of 2008. The operating loss was about SEK 1.395 billion (about U.S. $172 million), compared with operating income of SEK 1.3 billion in the year-ago quarter.
The operating margin was negative 17.1 percent compared to positive 8.6 percent in the first quarter of 2008. Negative currency impact contributed to the loss.
According to Volvo, the total market in Europe was down 64 percent in the first quarter and 48 percent in North America. Demand rose 9 percent in China, but this was offset by the rest of Asia declining 52 percent and other international markets dropping 64 percent.
Volvo counteracted the demand reduction by large production cutbacks, cutting inventories 10 percent in the quarter, adding to the 20-percent reduction in the previous period, resulting in a positive influence on cash flow. The company has reduced staffing, giving notice to 4,300 employees since September.
Volvo implemented a new function-based organizational structure in the first quarter to increase efficiency and speed execution.
The stimulus packages announced by several governments have not yet had a significant impact on the industry, Volvo said, and the value of the order book at the end of the quarter, March 31, was 73-percent lower than the same date in 2008, excluding Lingong and the acquired road machinery business.
Volvo expects total market conditions for 2009 to remain weak, with European demand forecasted to decline by up 50 percent, North American demand by 20 to 25 percent and the rest of the world up to 40 percent.
“The substantial economic stimulus measures combined with interest rate cuts by central banks around the world will, towards the end of 2009 and in 2010 onwards, contribute to drive demand for our products,” said Olof Persson, president and chief executive of Volvo Construction Equipment. “So far we have seen measures taken in China increase demand towards the end of the first quarter. Although these are positive signs, it is too early to talk about a sustained recovery.”
In other Volvo news, the company last week attended the Intermat exhibitition in Paris, introducing its ultra high-reach demolition excavator EC360CHR and reduced radius ECR305CL, among others.