Swedish equipment manufacturer Volvo Group’s construction equipment deliveries and net sales decreased in the second quarter as demand normalization prompted a slowdown in most markets.
Volvo Construction Equipment’s (Volvo CE) North American orders rose year over year in the second quarter, despite deliveries and sales dropping, according to the company’s earnings release.
The Q2 decrease in construction equipment deliveries also follows record earnings in Q2 2023 and signals demand normalization following the pandemic, Volvo Group Chief Executive Martin Lundstedt said during today’s earnings call.
“Construction Equipment deliveries continued to normalize and softened with Europe and North America down while China showed signs of bottoming out now after rather major corrections over the last quarters and years here,” he said. “For both trucks and Volvo CE, it was a good job done to continue to work with the flexibility tools that we have in the group and to gradually adjust to the different demands in different regions.”
In Q2, the construction equipment subsidiary reported:
- North American orders landed at 1,406 units, up 32.1% year over year;
- Global orders inched up to 13,522 units, up 8.1% YoY;
- North American deliveries declined 28.3% YoY to 1,899 units;
- Global deliveries dropped 9.9% YoY to 15,255 units;
- North American net sales decreased 14.3% YoY to 7 billion krona ($655.8 million);
- Global net sales fell 15.8% YoY to $2.3 billion;
- Fully electric orders increased 162% to 537 units; and
- Fully electric deliveries rose 150% to 569 units.
STATE OF PLAY
Volvo CE’s decline came as part of an overall mixed performance for the quarter, according to a Goldman Sachs research note.
“The beat is likely to be taken as a mixed read though, given it is mainly driven by the smaller Penta and Buses divisions while Trucks margins missed by 50 [basis points],” according to the research note. “Market development was upgraded for Trucks Europe/Brazil at mid-point by 3.5%/5%, while CE outlook was downgraded in Europe/Latam by 5 [percentage points].”
Key factors contributing to concerns for the Volvo Group include worsening worldwide macroeconomic growth affe commercial vehicles, the shortage in trucks and raw materials driving more stoppages, and product and anti-trust concerns, according to the Goldman Sachs research note.
Meanwhile, the lower sales volumes in North America and Europe limited the beneficial pricing and financing performance, Volvo Group Chief Financial Officer Mats Backman said during the earnings call.
“Higher prices on both new vehicles and parts together with lower material costs and R&D expenses were offset by negative mix from more volumes in China and less volumes in North America and Europe,” he said.
NOTEWORTHY
In addition, Volvo CE continues to reduce its book-to-bill ratio by managing its production schedule, although the Mack brand in North America maintains a strong backlog following the United Auto Workers’ strike, Lundstedt said.
“The same goes also for Mack in North America, where we still have a prolonged order backlog given the fact that they are positively exposed to segments that are still running very strong and also still some carryover effects on the backlog related to the strike that we had during the fall,” he said. “Generally, a good balance, and now it is the handcraft of adapting to the current demand, and you see that also in the book-to-build on heavy-duty, medium duty that it’s coming up and we are getting to that balance.”
MARKET REACTION
Shares of Volvo [OTC: VLVLY] were trading at $tktk as of market close today, down tktk% from market open. Volvo has a market capitalization of $tktk billion.
THE BOTTOM LINE
Despite an overall down quarter for Volvo CE, the decline was in line with the forecast, Lundstedt said.
“The continuous normalization and correction in our main markets are more or less on expected levels as we already communicated in quarter one,” he said.
Editor’s note: All amounts have been converted to U.S. dollars.
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