Volvo Group (OTC: VLVLY) reported a 38% decrease in second-quarter sales as the COVID-19 pandemic racked its truck, bus and construction equipment units.
The Swedish parent company of Volvo Trucks North America and Mack Trucks said the temporary layoffs of 4,100 white-collar workers during the quarter are now permanent.
Net sales of SEK 73.2 billion ($8.1 billion) compared to SEK 120.7 billion ($13.3 billion) in the same period a year ago. Adjusted operating income was SEK 3,272 million ($361.6 million) compared to 15,105 million ($1.7 billion) in the second quarter of 2019. The adjusted operating margin was 4.5% compared to 12.5% a year earlier.
“Since the record levels in Q2 of last year, demand has declined as part of a normal cyclical slowdown, something that was significantly accelerated by the pandemic,” Volvo CEO Martin Lundstedt said.
“We expect demand to continue to be negatively affected in the short- and medium-term because of the lower economic activity in many markets and the fact that the truck and machine populations are relatively young,” he said.
Including the latest round of layoffs, Volvo employs 10,000 fewer workers than a year ago. Restructuring charges of SEK 3.2 billion should result in similar savings. Most will take effect during the first half of 2021.
Volvo Group has 104,000 employees in 18 countries and sells trucks, buses and construction equipment in 190 markets. It also sells marine and industrial engines.
Double whammy for truck sales
Truck deliveries in the quarter fell 57% with all regions reporting declines. Net sales declined by 46% to SEK 40.6 billion. Adjusted operating income was SEK 0.7 billion compared with SEK 9.5 billion. The profit margin amounted to 1.8% compared with 12.6% a year ago.
A cyclical slowdown compounded by COVID-19 led to 45% fewer truck orders. Volvo scrubbed its order book of cancelations to account for weak demand.
“When countries started to open up again, both fleet utilization and order intake began to recover,” Lundstedt said. “However, there is still significant uncertainty about the future economic development and demand for our products.”
Construction equipment sales falter
Construction equipment demand in Europe and North America weakened in the second quarter. A strong rebound in China limited the decline in net sales to 15%. Adjusted operating income was 13.6% compared with 15.5%. Orders rose 11%, mostly because of Volvo’s strength in China, which is the world’s largest construction equipment market.
Demand for buses soured around the world because social distancing due to COVID-19 idled large numbers of coaches and tourist buses. Demand for electrified city buses remained stable. Net sales declined 64%. Deliveries were down 68%. Volvo Buses reported an adjusted operating loss of SEK 532 million compared to SEK 403 million.
Isuzu strategic alliance delayed
Volvo is delaying a planned strategic alliance with Isuzu Motors Ltd. Closing of the $2.28 billion sale of Volvo’s UD Trucks subsidiary in Japan is now scheduled for the first half of 2021. The two companies plan to partner on new technologies like electrification and autonomous trucking.
Also during the quarter, Volvo agreed to pay Daimler Trucks 600 million euros ($685 million) to create a 50/50 joint venture in making fuel cells for trucks and emergency backup systems for data centers.