Volvo surges as it increases cost-reduction target

Volvo jumped the most in more than four years in Stockholm trading as the Swedish truckmaker increased a cost-reduction target by 54 per cent and reported growth in adjusted earnings on a North American demand surge.

Volvo rose as much as 14 per cent, the steepest intraday increase since April 2010, and was trading up 10 per cent at 85.8 kronor at 10:21 a.m. That propelled the stock to a 1.6 per cent gain this year, valuing the company at 183.1 billion kronor ($25.2 billion).

Spending cuts by 2015 will be lifted to a total 10 billion kronor as the manufacturer intensifies cutbacks at the construction-equipment division and reorganises the truck-sales operation and reviews information-technology systems, Gothenburg-based Volvo said in a statement today.

Excluding the costs of restructuring that’s already under way, third-quarter operating income rose 16 percent.

Chief executive officer Olof Persson has a target to make Volvo the most profitable heavy-truck maker by realigning production of the European Volvo and Renault brands, cutting overhead costs and expanding overseas. In contrast to a drop in third-quarter truck orders at Daimler AG, the world's biggest maker of the vehicles, Volvo's advance sales rose in the period. Quarterly performance was "a step into the right direction," Matthias Eriksson, a Stockholm-based equity at Nordea Bank, said by phone. "They have identified more cost- cutting potential and have to continue to improve results in a major way in the coming quarters."

Orders rise

Third-quarter truck orders rose 14 percent to 50,449 vehicles because of a 73 percent surge in North America, where Volvo owns the Mack brand. Deliveries dropped 4.8 per cent to 45,939 trucks as declines in South America, Europe and Asia offset a 26 per cent jump in North America. Operating income excluding reorganization costs increased to 2.91 billion kronor from 2.5 billion kronor a year earlier. Revenue rose 3.6 per cent to 67.2 billion kronor. Restructuring charges jumped to 659 million kronor from 104 million kronor, and the company took a 422 million-krona provision for a lawsuit in the US

“It is very rewarding that we see the results coming in” from the efficiency drive, Persson said at a press conference in Stockholm. “Our hard work starts to show results.”

A program announced today to reduce the top executive team to 10 managers from 16 is intended to “take out layers” between the customer and the company to make Volvo “faster and more agile,” Persson said. The truckmaker will combine three regional sales groups into a single organisation, and the heads of the construction-equipment and financial-services units will no longer be members of the team.

Bloomberg