Volvo preparing for more output cuts after forecasting a slump

Volvo Group is preparing for more output cuts after forecasting a slump in truck deliveries next year in North America and Europe on weaker demand. The shares declined as much as 5 per cent, the most in a year.

Orders for heavy trucks slumped 45 per cent from a year earlier, more than analysts had expected, and deepening a drop from the second quarter.

For next year, Volvo expects the North American market to decline by 29 per cent and Europe by 14 per cent, after above-average demand in both regions.

“The correction that we have anticipated is coming in our main markets,” chief executive officer Martin Lundstedt said in Stockholm. “What we see for these markets is that they are coming down to a replacement level.”

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Truckmakers are preparing for leaner times as the truck cycle turns. Last week, the IMF made a fifth-straight reduction to its 2019 global economic forecast, citing trade tensions for its weakest view since 2009.

As a result, Volvo’s customers are holding back on investments, Lundstedt said, foreshadowing “action” to maintain “good” profitability.

The company still beat its own 10 per cent margin target during the third quarter with a return of 11 per cent, as Volvo factories clear significant backlog following a surge in orders over the last couple of years.

This will help the CEO’s quest to defend profitability even as conditions weaken. Third-quarter adjusted operating profit rose to 10.9 billion Swedish kronor ($1.1 billion), beating analyst expectations. – Bloomberg