Volvo said that the COVID-19 outbreak has severely disrupted the company’s production output and supply chain. However, the company’s overall business with trucks, buses, engines, and construction equipment remained overall profitable.
AB Volvo, the Sweden-based truckmaker and automobile giant released its results for Q2 2020. Surprisingly, the company reported better-than-expected profit numbers despite the shutdowns caused by the outbreak of the COVID-19 pandemic. Volvo stock (STO: VOLV-B) is 1.54% up on the news reaching SEK 161.20 per share.
In the official announcement, Volvo noted:
“After having been standing still in April, production was gradually restarted in May and is currently running well”.
However, the company added that several measures initiated by countries to control the spread of coronavirus have significantly impacted Volvo’s production output and supply chain.
The report also mention that in Q2 2020, Volvo’s net sales amounted to SEK 73.2 billion (120.7). When adjusted for currency movements, the net sales show a dip of 39%. On the other hand, adjusted operating income stood at SEK 3,272 M (15,105) while the operating margin was 4.5%.
In a hammer blow, Volvo’s order intake for trucks under it Mack, Renault, and also the Volvo brand dropped by 45%. The good thing is that bookings improved during the latter part of the second quarter. However, it adds that the outlook remains unclear with the continuous business disruption caused by COVID-19. In a statement to Reuters, Volvo CEO Martin Lundstedt said:
“When countries started to open up again, both fleet utilization and order intake began to recover. However, there is still significant uncertainty about the future economic development and demand for our products.”
Volvo Has Better Than Expected Profits in Q2
Volvo’s net operating profits across its business line – construction equipment, buses, trucks, and engines – 3.27 billion Swedish crowns ($360 million). This is just 20% compared to last year’s 15.1 billion, however, it much more than analysts’ expectations of 17 million crowns. In other actions initiated, Volvo said:
We also took forceful actions to reduce activities and costs, including salary reductions, temporary layoffs as part of governmental programs and a reduction of purchased services.
The Volvo shares clawed back and rose 3.5% in the early trading session on Thursday. The truck industry in Sweden has also received backing through state-sponsored aid and other production hubs.
In a research note, Citi analysts wrote that along with profit numbers, Volvo’s “with very good momentum vs expectations in Europe” was a big positive. The pandemic has also disrupted the company’s other business plans. Volvo’s partnership deal with its Japanese counterpart Isuzu has moved to the first-half of 2021.
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