Volvo earnings hold up despite Russia charge

Volvo Group posted solid Q1 sales and operating income despite ongoing supply chain interruptions and taking a $423 million charge for suspending its business in Russia.

The Gothenborg, Sweden-based truck, bus and construction equipment maker reported a 12% improvement in net sales to SEK 105.3 billion Swedish Krona ($11.1 billion). Adjusted operating income was SEK 12.7 billion ($1.34 billion). Adjusted operating margin was 12%.

Operating cash flow was negative SEK 5.4 billion because of inventory build up due to instability of supply chains.

Truck deliveries a Q1 record

Despite supply chain disturbances and production stoppages, truck deliveries increased 6% to a Q1 of 55,600 vehicles.

“We have had extra costs due to the supply chain disruptions as well as higher costs for material and have worked proactively with price management to mitigate them,” Volvo President and CEO Martin Lundstedt said. “We expect that the inflationary pressure will continue.”

Since Russia’s invasion of Ukraine and the imposing of sanctions, Volvo suspended sales, services and production in Russia. Russia accounted for about 3% of Volvo’s business. The company wrote off slightly less than half of its $950 million in total assets related to Russia, denting operating income.

Production stoppages

“The whole organization is doing an impressive job in supplying our customers with vehicles and machines and supporting them with services,” Lundstedt said. “However, the situation in the global supply chain for semiconductors and other components remains unstable.”

Production stoppages are likely to continue. The supply chain further stressed by COVID-19 lockdowns in China and the war in Ukraine.

Demand continues to outstrip supply, forcing Volvo to restrict order intake because of large backlogs, long delivery times and rising inflation.

Electric momentum

In North America, orders decreased by 73% to 6,017 trucks. Deliveries increased 7% to 13,908 vehicles. Volvo Trucks’ heavy-duty truck market share decreased to 9.8% from 10.3% a year ago. Mack Trucks’ market share fell to 5.3% from 6.6% in the same quarter of 2021.

Momentum in orders for Class 8 VNR Electric models continued. Global logistics giant A.P. Moller Maersk placed an order for 110 units on top of 16 VNR Electric models ordered last August. In Canada, Volvo Trucks’ customer Martin Brower, put into service a VNR Electric for dedicated deliveries to McDonald’s restaurants.