Volvo Construction Equipment’s 2008 Sales Rise 5 Percent Despite Negative Fourth Quarter

Feb. 9, 2009
A 39-percent drop in the world market for construction equipment during the fourth quarter of 2008 saw sales in the period down 29 percent for Volvo Construction Equipment, weighing heavily on the company’s full-year results, the company said last week.

A 39-percent drop in the world market for construction equipment during the fourth quarter of 2008 saw sales in the period down 29 percent for Volvo Construction Equipment, weighing heavily on the company’s full-year results, the company said last week.

Publishing its fourth-quarter and full-year results, Volvo CE announced that it delivered 64,000 units in 2008, a similar figure to 2007 but resulting in an increase in net sales of 5 percent. These full-year figures came in the face of a negative fourth quarter, which saw global financial uncertainty push Volvo CE sales down 29 percent in the period.

For the full year 2008 Volvo CE’s sales increased by 5 percent to SEK 56.1 billion (about U.S. $6.8 billion) from SEK 53.6 billion (U.S. $6.5 billion) a year ago. Both operating income and operating margin were badly hit in the final quarter of the year, dragging Volvo CE’s full year operating income to SEK 1.8 billion (U.S. $218.4 million) from 4.2 billion (U.S. $509.6 million) in 2007 and operating margin to 3.2 percent down from 7.9 percent in the preceding year.

Volvo CE was affected by the severe downturn in the global market for construction equipment in the fourth quarter, reporting a loss during the period. Sharply declining sales, production cutbacks and higher raw material costs all contributed to the loss. Net sales in the fourth quarter were down 29 percent and amounted to SEK 11.0 billion (U.S. $1.3 billion) from SEK 15.5 billion (U.S. $1.9 billion) in 2007. When adjusted for changes in the exchange rates and acquired and divested assets, net sales fell by 38 percent. The operating loss amounted to SEK 1.3 billion (U.S. $151.7 million) compared to an operating income of SEK 1.0 billion (U.S. $125.0) in the fourth quarter of 2007. The operating margin in the period was a negative 11.4 percent (positive 6.7 percent in 2007).

Responding to the difficult trading conditions, Volvo CE has implemented a comprehensive plan to improve efficiency. In order to reduce inventory levels the company has cut production output in all its factories. These efforts to decrease the number of new products in inventories have been successful, with a 19-percent reduction since October and a further 20 percent reduction expected in the first quarter of 2009. The slowdown in production capacity has also led to the company issuing notices of termination to 3,400 employees.

Despite the tough trading conditions, the company said, it has continued to gain market share in most of its markets and product segments during the quarter, thanks to a strong dealer network and product range.

According to Volvo CE, the North American market was down 34 percent in the fourth quarter of 2008, while Europe fell 49 percent, Asia reduced by 38 percent and other international markets fell by 28 percent. For the full-year 2008, the total world market for construction equipment declined by 11 percent.

The outlook for 2009 is uncertain, but is expected to remain weak. The European market is set to decline in the range of 30 to 40 percent. North America is forecast to decline between 10 to 20 percent while the rest of the world is likely to be down 30 percent.

Volvo CE’s focus in 2009 will be on downturn management, lowering its cost level and balancing production capacity to suit market conditions. Other activities to improve the profit level include gaining synergies from acquired companies, cost reductions, increased platform commonality, better coordination between factories and active price management, the company said. Through these measures, Volvo CE will have created the conditions to continue its positive performance of recent years. It has a strong product program that is at the forefront of the industry, good positions in key markets and is active in segments with long-term growth opportunities.

Volvo CE is an international company developing, manufacturing and marketing equipment for construction and related industries. Its products include a comprehensive range of wheel loaders, hydraulic excavators, articulated haulers, motor graders, soil and asphalt compactors, pavers, milling machines and compact equipment.