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Sweden's Volvo hit by cancelled orders as pandemic creates 'new normal'

04/23/2020 | 04:59am EST
FILE PHOTO: IAA truck show in Hanover

Sweden's AB Volvo on Thursday warned of stalling truck orders and a challenging adjustment to a "new normal" of feebler demand after reporting a smaller-than-expected fall in quarterly operating earnings helped by service sales.

The rival to Germany's Daimler and Volkswagen subsidiary Traton said its net order intake had turned negative since the end of March as customers rushed to cancel planned truck purchases due to the coronavirus pandemic.

The Gothenburg-based manufacturer last suffered a demand downturn on a similar scale during the 2008 global financial crisis when cancellations outpaced new orders for a full quarter. Volvo shares fell 6.65% by 0850 GMT.

Already facing a cyclical slowdown before the outbreak brought markets and production to a halt in Europe and North America last month, the slump is set to test Volvo which in the past has struggled to handle violent swings in demand.

"In the coming quarters, it will be challenging to reduce costs with the same speed and magnitude as revenues are decreasing," CEO Martin Lundstedt said in a statement, adding he expected demand for services to suffer too.

Adjusted operating profit at the maker of trucks, construction equipment, buses and engines fell to 7.1 billion Swedish crowns ($704 million) from 12.7 billion but topped the 6 billion expected by analysts, Refinitiv Eikon estimates showed.

Volvo last month shelved plans for an extra shareholder payout though it said on Thursday it still intended to pay its ordinary dividend for 2019.

One of Sweden's biggest private sector employers with a global workforce of 100,000, the company said it aimed to "cautiously restart" manufacturing in Europe, North America and Brazil at low levels at the end of April and beginning of May.

"Everyone is struggling with what the ramp-up and new normal will look like," Lundstedt said in a conference call.

"Our current estimate is that the gradual return will be slow and activities in the Volvo group need to be adjusted."

While factories may be stirring back to life, uncertainty lingers as to how much demand will be there to meet the output.

Order intake of its trucks under brands such as Mack and Renault as well as its own name fell 16% in the first quarter but Volvo warned the decline had been 75% in March versus February and net negative since then.

Volvo, which in January saw the market falling by just under 15% in Europe and by nearly 30% in North America this year, said it was now not meaningful to try to forecast.

"It was rather expected that they wouldn't give forecasts ... since uncertainty is so big and visibility almost none," Handelsbanken Capital Markets analyst Hampus Engellau said.

By Niklas Pollard

© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
AB VOLVO 0.13% 195.15 Delayed Quote.24.38%
AT HOME GROUP INC. -3.18% 16.73 Delayed Quote.204.18%
DAIMLER AG 2.54% 58.21 Delayed Quote.17.91%
JUST GROUP PLC -0.78% 57.45 Delayed Quote.-27.28%
MAN SE -2.54% 44.05 Delayed Quote.1.97%
PACCAR, INC. 0.52% 86.7 Delayed Quote.9.61%
THE GLOBAL LTD. 4.22% 321 End-of-day quote.-31.85%
THE NEW HOME COMPANY INC. -0.53% 5.64 Delayed Quote.21.03%
TRATON SE 3.08% 22.93 Delayed Quote.-4.12%
VOLKSWAGEN AG -0.45% 145.42 Delayed Quote.-17.49%
WILL GROUP, INC. 0.40% 998 End-of-day quote.-20.29%
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