Volvo Trucks grapples with weak order intake, eyes challenging 2024

Volvo's profit dilemma: Volvo, the Swedish truck manufacturer, revealed a larger-than-expected increase in fourth-quarter profits on Friday. However, the company faced a challenging outlook for 2024 due to weak order intake, leading to adjustments in production levels amidst decreasing demand. The truck market anticipates a tough year ahead, with analysts predicting a decline in European demand, particularly as transport volumes decrease from historically high levels.

In response to the softening demand, Volvo revised its predictions for the total European heavy truck market in 2024, reducing the expected registrations to 280,000 trucks from the earlier forecast of 290,000. Nevertheless, it maintained its prediction of 290,000 registrations for the North American heavy truck market. Additionally, Volvo raised its forecast for the China medium and heavy truck market to 800,000 trucks, up from the previous estimate of 700,000.

Despite Volvo shares having gained approximately 20 per cent in the past year, outperforming Sweden's benchmark stock market index, they experienced a nearly 3 per cent decline at 0808 GMT following the news.

Financial analysts' concerns

Financial analysts, including JPMorgan and Royal Bank of Canada, acknowledged Volvo's healthy financial results but expressed concerns about weak order intake and potential margin softness. JPMorgan specifically highlighted questions regarding the sustainability of margins in light of today's results.

During the quarter, Volvo's order intake decreased by 9 per cent to 49,347. CEO Martin Lundstedt attributed the decline to the normalisation of demand in various markets and segments. He highlighted the company's mitigation of cost inflation through price management, handling supply chain disruptions, and reducing inventories.

The challenging market conditions are not unique to Volvo, as other truck makers, such as Daimler trucks, also face difficulties. Daimler trucks cited ongoing supply shortages in key regions as a factor contributing to a modest 1 per cent growth in group sales for the full year of 2023.

Volvo's adjusted operating profit, accounting for divestment costs, reached 18.4 billion Swedish crowns ($1.76 billion), surpassing the forecast of 17.2 billion crowns in an LSEG poll. The company proposed an ordinary dividend of 7.50 crowns per share for 2023, up from 7.0 crowns in 2022, along with an extra dividend of 10.50 crowns per share, compared to 7 crowns the previous year.

(With Reuters Inputs)