Volvo trucks third quarter eases capital hike worries

24 Oct, 2009

World number two truckmaker Volvo made a smaller third-quarter loss than expected, easing fears it would need more cash from investors, but it still expects sharp declines in its main markets. The commercial vehicles maker made its biggest-ever quarterly loss earlier this year, raising concerns it would tap the market for capital to ride out the market plunge.
With analysts braced for a third-quarter loss of 4 billion crowns, Volvo's ability to limit the shortfall to 3.3 billion ($477 million) provided some relief to the company's shares. Volvo stock had climbed 4.9 percent to 69.75 crowns by 0926 GMT, outperforming a 1.1 percent gain in the broader market. Shares in rivals MAN AG and Scania were also up, rising 1.9 percent and 3.9 percent, respectively.
Erik Penser analyst Kenneth Toll Johansson said the results were an important indication that the situation for the truckmaker was finally stabilising. "I think this report will get rid of much of the talk of a new share issue that has been making the rounds in the market," he said.
The global financial crisis hit heavy-duty truck markets with full force late last year, pulling the plug on years of easy credit to buy new vehicles as economic growth across the world lurched into reverse.
But signs of stabilisation from what Volvo Chief Executive Leif Johansson said was the steepest downturn ever experienced by the highly cyclical truck industry have firmed in recent months. Even so, a rapid recovery looks distant. "The basic scenario is that we are in an upturn and probably a slow one," Johansson told a news conference on Friday, adding he saw no need to top up capital.
The world's biggest truck maker, Germany's Daimler, said earlier this week it saw light at the end of the tunnel for its trucks business, noting order bookings had improved slightly since mid-year. Volvo said demand in Europe, its biggest market, had stabilised with "a more positive basic tone" as activity increased among customers. Johansson said some improvement was seen next year over a dismal 2009.
"We actually do expect the European truck market to come back in '10 compared to where it was in 2009. The real difficulty is that we don't know how (steep) the gradient will be," he said. "We think it might not happen very quickly." In North America, where the market has been at anaemic levels for longer, an upturn was also seen next year, he added, in part due to customers stocking up on older but cheaper trucks ahead of new emission legislation.
STANDS BY OUTLOOK European data on Friday showed new commercial vehicle registrations in the region fell 27.7 percent in September, compared with an aggregate 35.6 percent fall in the first nine months of the year. Volvo, which makes trucks under the Renault, Mack, Nissan Diesel and Eicher brands, repeated that the European truck market would halve or worse this year, while the already weak North American market would contract a further 30-40 percent.
The company, which also manufactures buses, construction equipment, engines and aerospace components, said order bookings of its trucks were flat year-on-year, but the year-ago quarter was extremely weak due to a wave of order cancellations. "I think we have a situation where order intake is coming up, and I think there is a reasonably good quality in that for two reasons," Johansson said. "One is that customers have become much more careful, and frankly we've also become more careful."
More word on the health of the commercial vehicles industry is due next week when Volvo's smaller domestic rival Scania and Germany's MAN AG issue their reports for the third quarter. Volvo, which has slashed thousands of jobs to bring down costs in the face of the downturn, said cash flow was negative to the tune of 1.4 billion crowns in the quarter compared with a negative 2.9 billion in the second quarter.

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