Truck maker Volvo posts record Q1 as sales, margins beat forecasts

VOLVO reported record first-quarter profit, a preliminary filing showed late on Tuesday (Apr 11), as the truck maker boosted its revenue and margins despite supply bottlenecks and cost inflation.

Its adjusted operating profit rose 45 per cent to 18.4 billion Swedish krona (S$2.4 billion) for the January-March quarter, well above the 12.9 billion expected by analysts polled by Refinitiv Eikon.

The Swedish company had said as recently as January it expected “disturbances, stoppages and extra costs” to persist, with soaring inflation and the energy crisis adding to the pain.

Volvo did not elaborate on what had spurred its turnaround and did not provide a profit outlook. It will report full first-quarter earnings on Apr 20.

“We believe this quarter was influenced by price increases and (a) much better supply chain situation leading to less stop and go on the production line allowing the firm to deliver very strong results,” analysts at JPMorgan said in a research note.

Volvo and rivals such as Germany’s Daimler Truck and Traton have struggled with semiconductor shortages and broader supply chain issues and strained freight capacity stemming from the Covid-19 pandemic and the war in Ukraine.

Volvo’s results could signal a broad improvement for the industry, with a particularly positive “read across” to Daimler Truck, Traton and Italy’s Iveco as well as for their suppliers, JPMorgan said.

Jyske Bank in a research note said that while the earnings were strong, the brokerage still worried that Volvo’s order intake could fall and that the truck maker’s customers could see stagnant activity amid global economic weakness.

Volvo’s preliminary net sales for the quarter rose to 131.4 billion krona from 105.3 billion and topped the 118.6 billion expected by analysts.

Its adjusted operating margin rose to 14.0 per cent from 12.0 per cent and earnings at the group’s two major divisions, truck making and construction equipment, both showed progress.

Net sales in the truck segment rose to 89.6 billion krona from 69.6 billion, beating a forecast of 79.7 billion.

The division’s operating profit jumped to 12.7 billion from 8.7 billion while analysts expected a decline to 8.4 billion.

Daimler Truck last month said its outlook had improved and that its profit would grow this year, but the company’s share price still fell amid concerns that inflation would weigh on its margins.

Volvo shares are up 3.1 per cent year to date, lagging a rise of 8.2 per cent in Stockholm’s benchmark share index. REUTERS