Volvo Construction Equipment sales drop

Volvo Construction Equipment’s third quarter net sales dropped 9% year-on-year to SEK13.3 billion (€1.5 billion), while operating income fell to SEK650 million (€75 million), compared to SEK1.4 billion (€162 million) in the same quarter of 2011.

The manufacturer, which said it had seen a “significant slowdown in demand” in recent months, also reported an operating margin for the three-month period of 4.9%, compared to 9.9% for the same period last year.

Volvo Group president and CEO Olof Persson said the manufacturer had cut production rates in response to weakening market conditions.

“Volvo CE noted a decline in demand in an increasing number of markets throughout the world, higher inventories among our dealers in Europe and China and stiffer price competition. Against that backdrop we decided to reduce production rates. When markets subsequently weakened further, especially demand from the mining industry, we were forced to cut production further. As a consequence of the substantially reduced production, the under-absorption of costs in the industrial system was considerable.”

Mr Persson said this, combined with increased price pressures, had put the manufacturer’s construction equipment operating margin under increasing pressure.

“However, it is positive that we, in this declining market, have managed to reduce both our own inventories and those at our dealers for five consecutive months,” Mr Persson added.

Based on the weak trend in the global economy, higher industry inventories and increased price competition, Volvo CE said it expected the pressure on its earnings to continue in the fourth quarter. It added that it had started a programme to reduce overall costs.

Overall market forecasts

The manufacturer forecast that the overall Chinese construction equipment market would decline between 25% and 35% this year (deeper than Volvo CE’s previous forecast of declines of between 15% and 25% for 2012).

For the full year, the European construction equipment market is expected to be down between 0% and 10% (compared to the previous forecast of a flat market), while North America is expected to grow between 15% and 25% (unchanged forecast) and South America by 0% and 10% (unchanged forecast). Asia excluding China is expected to grow 0% and 10% for the full year (unchanged forecast).

And further declines are predicted for 2013, according to Volvo CE, which cautioned that developments for next year were difficult to assess.

Nevertheless, it forecast that Europe would see its construction equipment market decline between 5% and 15% next year, while North America could see anything from a decline of 5% to an increase of 5%.

Anything between a decline of 5% to an increase of 5% was also forecast for South America, other markets and the Chinese market. Asia excluding China is expected to see falls of between 10% and 0%.