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Volvo Increased Profits Despite Falling Demand in US

Volvo Increased Profits Despite Falling Demand in US

Vehicle manufacturer, Volvo Group has beat profit forecasts even though demand in North America for the firm’s heavy vehicles continues to fall.

The drop was predicated; the increase – perhaps less so. The firm had lowered its expectations with regards to North America for the third time this year after US vehicle orders dropped by 29% during the second financial quarter. Moreover, intake of orders for trucks on the whole fell by 8%, much more than the 1% predicted by financial analysts.

Pessimistic outlook aside, the Swedish company revealed it has achieve a 10% operating profit for its core truck business, citing a recent cost-cutting programme as instrumental.

The impact of the SKr10bn cost-cutting programme – implemented by former top boss, Olof Persson – was evident as early as the second quarter, during which Volvo post reduced sales and yet, at the same time enjoy a profit hike of 2.5%. In fact, the company managed to achieve an operating margin of 7.8%, up from 7.1% in 2015.

The appointment of Martin Lundstedt as CEO has been similarly lauded as crucial in Volvo’s growth. Lundsetdt came from rival truck manufacturer Scania and, during his time there, he played a key role in retain the vehicle maker’s record as one of the industry’s most lucrative.

It should be highlighted that Volvo’s commendable profit does exclude a charge lodged against Volvo concerning price fixing. The vehicle manufacturer has put €650m aside to pay for the cartel investigation and settle what is thought will be a record fine in the EU.

Demand for trucks in Europe remains strong and consistent, and continues to prevent Volvo feeling the hit which its North American and construction equipment businesses have taken in recent times. Others, such as Daimler, whose primary business is truck manufacture in North America, are reported to have suffered more acutely; analysts warn that reduced profits are soon to be released elsewhere.

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