Construction Equipment

Improved profitability over the fourth quarter on flat sales

  • Continued weak demand in the global mining industry
  • Volvo CE pipeline inventories in good balance
  • Number one position in China maintained
  • First wheel loader produced in Shippensburg, USA

Most markets in decline
Measured in units, the total market for construction equipment in Europe decreased by 18% year-to-date February 2013 compared to the same period a year earlier. North America decreased by 7% while South America was down 20%. Asia excluding China decreased by 7% while China was down 42%.

The downturn in China has mainly been driven by considerable lower activities in the mining industry. However, Volvo CE has been able to maintain its strong position as the market leader with 14.8% share of the wheel loader and excavator market through February according to China Construction Machinery Association.

For 2013 the total market in Europe is expected to decline by 5% to 15% measured in units. North America, South America and China are all expected to be in the range of minus 5% to plus 5%. Asia, excluding China is expected to decline in the range of 0% to 10%. All forecasts are unchanged.

The big drop in deliveries in the first quarter of 2013 reflects that the global mining industry was booming in the first half of 2012, while there was a steep drop in demand during the second half and that the market has remained on a low level thereafter. Also, in the first quarter of 2012, there was an inventory build-up in the dealer channel that boosted deliveries. After significant destocking of the pipeline in the second half of 2012, inventories for Volvo CE and its dealers are currently in balance with demand.

In North America, the significant drop in deliveries is primarily a consequence of extraordinary high deliveries during 2012, as Volvo Rents as well as dealers both expanded and renewed their rental fleets following improving prospects for the construction sector. The drop in China can be traced to the slowdown in the mining segment, but also to measures taken by the government to cool down the real estate market.

The same explanation factors can also be found for the order intake. During the first quarter order intake for Volvo-branded machines amounted to 10,587 machines, compared to 8,866 delivered machines, which resulted in a book-to-bill ratio of 119%.

Significant drop in sales - down 33%
In the first quarter of 2013, net sales decreased by 33% to SEK 12,136 M (17,999). Adjusted for currency movements net sales decreased by 29%.

Sales were negatively impacted by lower volumes due to a softer world market in general and lower activities in the global mining industry in particular affecting sales of larger and more expensive products. The global mining industry, which was booming in the first half of 2012 and had a steep decline in the second half of 2012, is still on a low level, particularly in Asia.

Operating income decreased to SEK 500 M (2,089) and operating margin was 4.1% (11.6). Earnings in the first quarter were negatively impacted by considerably lower sales and a negative product mix due to lower sales into the higher margin mining segment. Production in the first quarter was increased from a low level in order to balance inventories and meet spring season demand. However, capacity utilization was still low, which resulted in an under absorption of costs in the industrial system in an amount of approximately SEK 400 M. In the first quarter of 2012 there was no under absorption of costs.

Compared with the first quarter of 2012, operating income was positively impacted by changes in currency exchange rates in an amount of SEK 38 M.

Important events during the quarter
Volvo CE’s USD 100 M investment program at its North American production hub passed an important milestone during the quarter. As well as the inauguration of a new headquarters building for its Americas sales region, the company also celebrated the start of wheel loader production at the company’s expanded manufacturing facility in Shippensburg, Pennsylvania. Initially making L60-L90 wheel loaders, localized production will help the company become more flexible and responsive to its customers in the region as well as reducing the currency exposure.