Volvo loss worse than feared by analysts

• Source: Shanghai Daily
• [08:13 July 22 2009]
• Comments

By Niklas Pollard

World No. 2 truck maker Volvo posted a deeper-than-expected second-quarter loss yesterday and stood by its forecast that the economic downturn would see its main markets shrivel this year.

But the drain of cash from the group slowed considerably in the quarter compared with the previous three months since the Swedish vehicles maker said it had managed to cut inventories further as it adjusted to the plunging demand.

"Sales and EBIT were clearly worse than expected. On the other hand cash flow was in line with what I had expected and I think that market expectations were for a much more negative cash flow," Handelsbanken analyst Hampus Engellau said.

Volvo skidded to an operating loss of 6.9 billion crowns (US$886 million), down from a 7.2 billion crowns profit a year ago, to come in below the 4.7 billion crowns loss seen in a Reuters poll of analysts.

"I think these are poor results," Erik Penser analyst Kenneth Toll Johansson said, adding that rising debt levels at the group were weakening its balance sheet. "Speculation and questions about a new share issue will follow."

Starved of money

Deep recessions across Volvo's main markets have dampened demand, leaving truck makers racing to cut production capacity, while the global financial crisis has left potential truck buyers starved of money to fund purchases.

Volvo, which manufactures heavy-duty trucks under the Renault, Mack, Nissan Diesel and Eicher brands, as well as its own name, said order bookings in the quarter tumbled 51 percent, with a fall of 59 percent in its key European market.

"In terms of market outlook, we maintain our assessment that the total European market for heavy trucks will be at least halved in 2009 compared with 2008 and that the North American market will decline by 30-40 percent," the company said.

"We see that the decline in demand has started to level off and that the markets have stabilized, even though it is still difficult to predict the rest of the year."

Volvo Chief Executive Leif Johansson said in a statement that the group had another "difficult quarter" ahead in terms of earnings due to lower productions rates and extended plant closures for vacations in order to cut inventories further.