Volvo Group stalls in Q4 as construction sector contracts

A worker scrubs the logo at Volvo Group's assembly plant in Kaluga, Russia, Jan 20, 2009. [Phoro/IC]

Volvo Group, the world's second-largest producer of trucks, posted a fourth-quarter loss as a plunge in construction equipment deliveries compounded the effects of provisions for credit losses and a potential antitrust fine.

The operating loss totaled 2.26 billion kronor ($272 million) compared with profit of 996 million kronor a year earlier, Sweden-based Volvo said in early February in a statement. Analysts on average had estimated that Volvo would post a profit. Revenue rose 1.1 percent to 77.5 billion kronor.

Volvo's fourth-quarter construction-equipment deliveries dropped 30 percent, including a 44 percent plunge in Asia, hurt by "weakness" in emerging markets, especially those that depend on commodity production.

"Whereas previously Volvo enjoyed strong demand from mining companies and very strong margins on those orders, now miners are just not ordering much at all," Hans-Peter Wodniok, a Germany-based analyst at Fairesearch, said.

Earnings were also hurt by reorganization costs totaling 830 million kronor and previously announced provisions of 660 million kronor for the construction-equipment division's expected credit losses in China and 3.79 billion kronor for a possible European Union truck-pricing fine, Volvo said.

A deepening economic slowdown in China prompted the country's central bank to lower banks' required reserve ratio on Feb 5, easing policy to stimulate growth.

A three-year efficiency program ends this year, which targets spending cuts totaling 10 billion kronor, will show full-year effects in 2016, Volvo said in early February. The company outlined plans in November to end production of Volvo-brand backhoe-loader and motor-grader and shift the models to a unit in China. The reorganization will result in about 1,000 job cuts, it said at the time.

"Our work toward further improving operational performance and lower cost levels has good traction," Chief Executive Officer Olof Persson said in an earlier statement. "Going forward, we still have a lot of hard work ahead of us but continue to have a good momentum."