Release Date: October 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Volvo AB (VLVLY, Financial) maintained a strong financial position with a return on capital employed in Industrial Operations increasing to 38.3%.
- The company successfully managed volume flexibility, particularly in Europe and South America, maintaining a good balance in these regions.
- Volvo AB (VLVLY) reported a 4% year-over-year growth in service sales, demonstrating resilience in this segment.
- The start of production for the all-new VNL truck model in North America is expected to drive significant benefits for customers and the company.
- Volvo AB (VLVLY) achieved a record operating income margin of 11.8% in its Buses segment, driven by strong price realization and high volumes.
Negative Points
- Net sales declined to SEK 170 billion due to softer markets and lower volumes, with a significant negative currency impact.
- Truck deliveries declined by 16% in the quarter, with the light-duty business being the most impacted.
- The company faced supply chain issues in North America, particularly affecting Mack trucks, resulting in a significant loss of volumes.
- Construction Equipment sales decreased by 20% due to lower volumes and a negative brand and market mix.
- Volvo AB (VLVLY) experienced a 50% decline in North American orders, attributed to restrictive order slotting and market conditions.
Q & A Highlights
Q: Can you elaborate on the North American market environment, particularly the differences between vocational and on-highway segments, and how the issues with Mack are affecting market share?
A: Martin Lundstedt, CEO, explained that the major correction is in the on-road segment, which follows the normal economic patterns. Volvo has adjusted resources accordingly, especially with the introduction of the new VNL platform. Vocational segments remain strong, particularly for Mack, which has high customer loyalty due to its application excellence. The company is addressing supply issues by taking over operations to better control and improve delivery capacity.
Q: How is the gross income affected by supply chain disturbances and currency fluctuations, and what is the outlook for pricing in the truck segment?
A: Mats Backman, CFO, noted that while there is a negative volume effect, the company is maintaining its pricing levels. The year-over-year carryover effect will diminish in the fourth quarter, but the underlying price environment remains stable. The introduction of the new VNL model offers opportunities for value-based pricing.
Q: Could you discuss regional differences in Europe and the potential for hybrid trucks as an intermediate solution?
A: Martin Lundstedt highlighted that Central Europe, particularly Germany, is experiencing softness, but Volvo's broad market presence helps mitigate this. The company has a strong position in Eastern Europe, managing order intake and stock levels effectively. Regarding hybrids, there is no strong demand currently, but Volvo has the technological capability to adapt if necessary.
Q: How is Volvo planning for the EPA prebuy in the US, and what are the expectations for volume and pricing impacts?
A: Martin Lundstedt stated that the market is expected to be flat, with a slight uptick in 2025 due to prebuy patterns. The vocational market is already well-covered into 2025, with good price execution. The focus is on managing the on-road segment balance, with expectations of improved transport activity as interest rates normalize.
Q: What is the impact of the Mack supply issues on North American orders, and how does this align with the positive outlook for 2025?
A: Martin Lundstedt clarified that Mack is sold out for the year and well into 2025, with restrictive order slotting. The issues have not significantly affected order quality or sales loss. The decline in orders is due to strategic management of order books rather than demand issues.
Q: How quickly can Mack's delivery capacity recover, and what is the impact of delaying the battery cell plant in Mariestad?
A: Martin Lundstedt expects gradual improvements in Mack's delivery capacity now that operations are in-house. The delay in the Mariestad plant is a strategic decision to align with market conditions, but R&D activities continue as planned, with flexibility to adjust if necessary.
Q: Can Volvo continue to raise prices and defend margins in uncertain markets, and in which regions is this most feasible?
A: Martin Lundstedt emphasized maintaining price discipline in soft markets, with opportunities for value-based pricing in North America due to new product introductions. The focus is on sustaining high-quality pricing strategies across regions.
Q: How does the current inventory level in North America affect retail sales expectations for 2025?
A: Martin Lundstedt indicated that managing the on-road segment is crucial, with expectations of improved transport activity as interest rates decrease. The company is prepared for a balanced approach to inventory and sales, with flexibility to adapt to market changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
