Volvo Construction Equipment was negatively impacted by weak demand across most of its markets during the first quarter of 2013. This effect was particularly pronounced in the mining sector, which has seen a sharp decline compared to the same period last year. Despite these setbacks, however, profitability improved compared to the fourth quarter 2012 and the company maintained its number one position in the Chinese market, it said.
During the first quarter Volvo CE net sales declined 33 percent to SEK 12.14 billion (about U.S. $1.84 billion) from SEK 18.0 billion in the first quarter of 2012. In spite of this reduction in sales, the company maintained profitability, though at a reduced rate. Operating income declined 76 percent to SEK 500 million (U.S. $75.7 million), compared to SEK 2.09 billion in the first quarter of 2012, while operating margin was 4.1 percent, down from 11.6 percent. Earnings were not only impacted by lower sales but also by the product mix, with fewer larger, typically higher margin machines being shipped, particularly to the mining sector.
Volvo CE reported an across-the-board decline in its markets. Measured in units, Europe was down 18 percent, while North America decreased by 7 percent and South America by 20 percent. Asia (excluding China) was also down by 7 percent, while China itself slumped by 42 percent. Despite the sharp slowing of the Chinese market, Volvo has been able to maintain its market leadership position in the country, staking claim to 14.8 percent of the wheel loader and excavator market.
The prospects for the rest of the year remain modest. Measured in units, Europe is expected to decline by between 5 and 15 percent, while North America, South America and China are predicted to hover around the minus 5 percent to plus 5 percent mark. Asia (excluding China) is forecast to grow in the range from zero to 10 percent.
“We have been through a challenging couple of quarters but have now got our inventory pipeline in balance and stabilized the business at a lower sales volume,” said Volvo CE’s president Pat Olney. “We still need to keep a tight rein on costs, as well as improve our geographical and product mix. But I take confidence in the fact that we have improved our margins compared to the last quarter of 2012, despite similar sales revenues.”
In the quarter, Volvo CE inaugurated its new $100 million headquarters facility in Shippensburg, Pa., and began production of its L60-L90 wheel loaders. This localized production will help the company become more flexible and responsive to customers in the region, as well as reducing the currency exposure.
Volvo CE is based in Stockholm, Sweden with U.S. headquarters in Shippensburg, Pa.
