Volvo Q1 2012

Swedish truck and construction equipment manufacturer AB Volvo (OMX: VOLV B) reported earnings on Thursday. Sales grew strongly behind a major surge in truck orders in North America and reached 78.8 billion SEK. The company delivered 12 800 trucks in North America during the quarter and received orders for over 13 000. Truck sales growth was evident everywhere else, except in Europe where operations were stable vs. last year but up compared to Q4 2011 at 23 400 trucks ordered. At 49 billion, truck sales contributed over 60% of the total revenues.

Operating margin was clearly weaker though at 7.9% vs. 9.1%, which meant that operating income for the period was lower than last year at 6.24 billion. CEO Olof Persson said this resulted from a different market mix, namely meaning that margins in North America are lower than in Europe and Brazil. Diluted earnings per share for Q1 fell just below 2 SEK.

The company raised heavy-duty truck market forecast in Europe to approximately 230,000 vehicles total orders for the industry in 2012. In North America it appears the corresponding number will be around a quarter of a million. Brazil could reach 105 000 heavy trucks orders in 2012 where as in Japan the reconstruction work following the natural disaster last year is yet to gain full speed and the forecast offor heavy-duty trucks is about 30000.

Construction equipment sales grew 17% to 18 billion. The total market increased quickly in North America, Europe and in Asia excluding China. The observed slowdown in China according to China Construction Machinery Association reached 26% in December-February. Volvo now expects 15-25% total construction equipment market decline in China this year. Still to put things into perspective, the size of the market in China is still bigger than Europe and North America combined. Volve CE managed to outperformerm the market and clearly increase its market share within wheel loaders and excavators. Volvo recently launched a new SDLG plant in Linyi, Shandong.

As tends to be the case in Q1, operating cash flow was sharply negative. At the end of the quarter Volvo had almost 100 000 full-time and nearly 20 000 temporary employees. The report was a pleasant surprise to the markets. Volvo gained over 2% on both Thursday and Friday to finish the week at 94 SEK a share.