(Updates with CEO’s comment in 13th paragraph.)
Oct. 25 (Bloomberg) -- Volvo AB reported a surprise drop in operating profit, sending the stock down the most in a year, as a strengthening krona burdened earnings at the world’s second- biggest truckmaker.
Earnings before interest and taxes fell 18 percent to 2.4 billion kronor ($380 million) from 2.92 billion kronor a year earlier, Gothenburg, Sweden-based Volvo said in a statement today. Profit was less than the 3.15 billion-krona average of 12 analyst estimates compiled by Bloomberg.
In response to the declining profit, Volvo outlined plans to eliminate 2,000 administrative jobs, or 1.8 percent of its workforce, under a program announced in September to generate annual cost savings of 4 billion kronor through 2015. Volvo reported 7.5 percent growth in third-quarter truck orders, lagging behind jumps of 29 percent at local competitor Scania AB and 33 percent at industry leader Daimler AG.
Volvo is “unlikely to be forgiven for the miss this time, especially as it looks like they are trailing peers in terms of orders and the margin improvement plan has shifted two years to the right,” David Arnold, a London-based industry specialist at Barclays Capital, said today in a report to clients.
Third-quarter net income fell 0.9 percent to 1.39 billion kronor, Volvo said. Sales slumped 4.9 percent to 64.9 billion kronor. A 1 percent drop in truck-division revenue contrasted with a 4.1 percent increase in deliveries to 43,248 vehicles. Orders amounted to 44,224 trucks.
Volvo fell as much as 7.4 percent, the steepest intraday drop since Oct. 24, 2012, and was trading down 6.3 percent at 88.45 kronor at 1:12 p.m. in Stockholm. That pushed the shares to a 0.4 percent decline this year, valuing the truckmaker at 186.3 billion kronor.
The company’s truck brands include Volvo and Renault in Europe, Mack in North America and UD in Asia. Currency effects reduced third-quarter operating profit by 1.07 billion kronor, Volvo said.
The Argentinian peso dropped 21 percent against the krona in the 12 months through Sept. 30, and the Brazilian real fell 11 percent, according to data compiled by Bloomberg. The yen plunged 22 percent and the dollar declined 2.3 percent.
Gains by the krona and the euro hurt third-quarter sales and profit across Europe’s manufacturing sector, including at Soedertaelje-based Scania and French carmaker Renault SA, the former owner of the namesake heavy-vehicle brand now held by Volvo.
Renault’s revenue missed analyst estimates as currency drops in South America and Russia versus the euro more than offset global delivery gains and higher pricing in Europe. Gothenburg-based SKF AB, the world’s biggest maker of bearings, is looking at buying more materials locally after currency shifts hurt earnings in the period by 190 million kronor. Stockholm-based Electrolux AB, the second-largest producer of home appliances, said today that a cost-cut program is being widened, potentially affecting 2,000 employees.
Volvo’s group workforce totaled 112,644 people at the end of September, including 17,216 temporary employees and consultants, the company said in its earnings report. The job cuts will be focused on the group’s main locations in the U.S., Sweden, France and Japan, said Karin Wik, a spokeswoman.
The company said on Oct. 16 that it will scale back production in Europe as part of the earnings-improvement project, shifting manufacturing among plants in different countries and affecting another 900 employees, including 700 in Sweden. Volvo hasn’t specified whether those workers will be dropped or transferred, saying it’s in talks with unions on their future.
The reorganization is “the largest change in the European manufacturing system ever done” by Volvo, Chief Executive Officer Olof Persson said today at a Gothenburg press conference. Business in the quarter was “tough,” he said. The efficiency program is starting to show its first positive effects, with research and development spending and variable costs per truck declining, he said.
Earnings were held back by spending on new models and by simultaneous production of old and new generations of vehicles, Volvo said. The FH product line was updated starting last year, and new versions of Renault trucks were presented in June. During the third quarter, UD began production in Bangkok of the Quester, the brand’s first model developed and produced in Southeast Asia specifically for that region.
The phase-in of production to only new models will be completed in the first quarter of 2014 at the Volvo brand and by mid-year at the Renault division, Persson said.
Scania said on Oct. 23 that third-quarter orders and deliveries were helped by truck purchases in Europe in advance of pollution regulations taking effect in 2014. Net income fell because of the krona’s gain and vehicle-price pressure. Stuttgart, Germany-based Daimler said its truck division’s Ebit in the period rose 4 percent as deliveries gained because of the so-called pre-buying in Europe and a market recovery in Brazil.
--Editors: Tom Lavell, Robert Valpuesta