Volvo cuts North American market outlook as orders slump

[MUNICH] Volvo AB cut its outlook for the North American truck market for the third time this year after orders slumped nearly one-third in the second quarter, as other key markets also declined.

Truck orders in North America fell 29 per cent, and manufacturers as a whole will probably sell about 240,000 vehicles there this year, the Gothenburg, Sweden-based company said Tuesday in a statement. That's 10,000 less than its previous forecast and would be 20 per cent fewer than in 2015.

Europe failed to offset the drop, as orders in the region fell 2 per cent in the second quarter.

Slowing demand in the US and the Middle East and recession in Brazil have wreaked havoc on truckmakers' expectations for the year. Daimler AG, the biggest commercial-vehicle manufacturer, cut its trucks forecast in May, saying profits will be "significantly lower."

Volvo, which owns the Mack Trucks brand in the US, announced production cuts in North America and Brazil in February. Volvo will lower US output further this summer, chief executive officer Martin Lundstedt said in June.

"This result isn't looking so good for Volvo," said Hans-Peter Wodniok, a Frankfurt-based analyst with Fairesearch GmbH.

"Further steps on restructuring the business are likely."

Volvo rose 1.1 per cent to 89.75 kronor at 9:15 am in Stockholm. The stock has gained 14 per cent this year.

The company had been working through a restructuring program to cut annual spending this year by 10 billion kronor (S$1.58 billion) from 2012 levels.

On top of the market slowdowns the trucks unit is facing, the smaller construction-equipment division is also suffering from tepid demand as low oil prices and price declines for other commodities delay new projects.

Second-quarter earnings before interest and taxes, and excluding capital gains, a provision related to a European Union competition investigation and restructuring costs, increased to 6.13 billion kronor from 5.98 billion kronor a year earlier, as production cuts to save costs helped offset the intensifying slowdown. That beat the 5.5 billion-krona average of 11 estimates compiled by Bloomberg.

Group sales fell 7 per cent to 78.9 billion kronor. Orders for construction equipment dropped 17 per cent.

Volvo set aside an additional 250 million euros (S$374 million) last month for a possible European Commission fine for a suspected cartel, bringing its total provision for the price-fixing investigation to 650 million euros.

The commission may impose the fines as soon as the end of the month, people familiar with the probe said.

BLOOMBERG