Strong quarter from Volvo, North American orders fall off a cliff

Heavy Trucks manufacturer AB Volvo (OMX: VOLV B) is planning to focus on its core business after the expected closure of Volvo Aero divestment. The other major issue awaiting authorities’ decision is acquisition of shares in Deutz AG to become largest shareholder of it. The aim there is to continue cooperation on off-road medium-duty diesel engines and explore the possibility of a joint-venture in China. Second quarter of 2012 saw record sales volumes and solid operating profits of 84 billion and 7.3 billion SEK respectively.

Sales spread is 51 billion in trucks, 20 billion in Volvo CE, 5.2 billion in busses and about 2 billion for both Penta and Aero each. Sales growth in North America fully offset decline in Europe. Now if these things were all, reaction should be unequivocally positive. However the 19% decline in orders received year-on-year reflecting fast slowdown vs. strong Q2 2011 in North America (-47%) and some deterioration in Southern Europe adds a major element of worry. The company is going to make intermittent production tweaks to address down weeks and reorganization is going according to plan.