Volvo posts 37% drop in operating income

Volvo Group posted third-quarter global sales 2% over 2007 figures, but saw a 37% decline in its operating income on lower truck sales primarily in North America and Asia

Volvo Group posted third-quarter global sales 2% over 2007 figures, but saw a 37% decline in its operating income on lower truck sales primarily in North America and Asia. Volvo had posted record sales and income in the first two quarters of 2008.

The company saw net sales increase to $8.8 billion (69.6 SEK M) from $8.7 billion (68.4 SEK M) in 2007. Operating income took a tumble, dropping to $403.6 million (3,177 SEK M) from $635.7 million (5,010 SEK M).

“The downturn in the economy has been significantly exacerbated by the global financial crisis,” said Leif Johansson, Volvo Group president & CEO. “The important European market has declined significantly, while North America and Japan continue to show weak demand.”

Volvo cited increased costs for raw materials and components, increased research and development efforts ahead of new emission regulations and a slowdown in demand as reasons for the results.

“In Europe, customers are continuing to adopt a wait-and-see attitude to the ordering of new vehicles and equipment,” Johansson said. “Moreover, they have increasingly opted to cancel already placed orders. For our part, we have made sure to diligently go through and cleanse out orders in order to secure the quality in our order books.”

As a result, the company said truck orders in Europe dropped nearly 100% for the quarter, from 41,970 in 2007 to 115 this year. About 20,000 new trucks were ordered for the period, but the net gain of just 115 is due to the order book accounting process, the company said, reflecting canceled orders and order adjustments.

Overall, truck operations saw a 5% decline in deliveries and Johansson said the company foresees growth of less than 5% in Europe, a decline of 10% in North America and a 15% drop in Japan.

“We are currently implementing structural measures and adapting production rates in an effort to reduce costs and increase efficiency,” Johansson said.

The company plans to eliminate 1,400 jobs at facilities in Ghent, Belgium, and in Goteborg and Umea, Sweden. Volvo also said it will implement a “cost-reduction plan” to compensate for continued slow sales and rising material costs.

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