AB Volvo (OTC: VLVLY) reported higher third-quarter profits and sales on Friday, October 18. But it warned that orders for new trucks in North America and Europe continue to decline and a strike at its Mack Trucks unit could pinch profits depending how long it lasts.
Volvo earned $1.12 billion compared with $1.05 billion in the July-to-September period a year ago. The consensus of analysts called for earnings of $1.03 billion, according to Refinitiv.
Net sales in truck operations rose 6% to $6.65 billion. Operating income was $770 million compared with $700 million in the third quarter of 2018. The operating margin of 11.6% compared favorably to 11.1% in the same quarter a year ago.
Volvo shares have fallen 7% in value over the last six months as the truck market has cooled.
The number two global truck maker behind Daimler AG is the parent company of Volvo Trucks North America and Mack Trucks.
Saturated market
“During the last couple of years, customers in Europe and North America have renewed and expanded their truck fleets, but with freight volumes having leveled off and with the current uncertainty about the future economic development they are now holding back on investments,” Martin Lundstedt, Volvo president and CEO said.
Total truck orders are running 45% behind 2018. Customer deliveries fell 2% overall in the third quarter.
In North America, orders were off 81% to just 4,966 trucks compared to a record-setting quarter a year earlier. North American deliveries were down 6%. Volvo’s market share in North America fell 1.2 points to 9.3% from 10.5% a year earlier.
In Europe, heavy- and medium-duty truck orders fell 20% to 16,332 vehicles. European deliveries decreased by 10% to 17,697 vehicles. Volvo Trucks’ heavy-duty market share through August decreased to 15.3% compared with 16.2% in the same period last year.
“During Q3, we continued to reduce our production volumes and further adjustments will be implemented in coming quarters,” Lundstedt said. “For 2020, we expect markets to come down to more normal replacement levels in both Europe and North America.”
Mack strike impacts
At Mack, deliveries were up 13% overall, led by a 16% gain in North America. Third quarter orders were off 55%. The brand’s market share rose to 6.8% from 6.6%.
A United Auto Workers (UAW) strike by more than 3,500 workers in three states was in its sixth day Friday. Its impact is spreading.
Volvo Trucks North America will idle its assembly plant in Dublin, Virginia on October 21 and temporarily lay off about 3,000 workers because of a lack of engines and transmissions from a strikebound powertrain facility it shares with Mack in Hagerstown, Maryland.
Both Volvo North America and Mack planned two weeks of downtime before the end of the year to shrink bloated inventories. Neither would say how production lost during the strike would affect those plans.
AB Volvo said in the business risks notes in its earnings report that the strike could impact profits depending on how long it lasts. Negotiations between Mack and UAW bargainers are scheduled to resume on Tuesday, October 22.
“We are confident that we will be able to reach an agreement that continues to provide a competitive wage and benefit package for our employees while helping to ensure the company’s competitiveness,” Mack President Martin Weissburg said in a statement on October 12.