- Transition to Euro 6
- Strong demand in North America and Japan, weakening market in Brazil
- Operating margin excluding restructuring charges improved to 4.1% (0.3)
Improved outlook in North America and Japan but weakening demand in Brazil
In the first three months of 2014, demand in Europe declined as expected compared to the very strong finish of 2013 when customers chose to renew their fleets ahead of the new emission standard, Euro 6, which became effective in January 2014. However, compared with the weak period in 2013, truck registrations in Europe showed an increase of 11% through February. We maintain our forecast for the heavy-duty truck market in Europe in 2014.
In the first quarter of 2014, the total North American retail market for heavy-duty trucks continued to increase gradually to 54,584 vehicles, compared with 50,302 in the first quarter of 2013. In addition to replacement demand, the increase can be attributed to growing customer confidence in the economy, strong freight demand and increased construction activity. Supported by the recent market development, we have raised our outlook for the total market for heavy-duty trucks in North America to 260,000 trucks.
In Brazil the truck market started to weaken in the quarter due to slow economic growth, all in all the total market for heavy-duty trucks declined by 8% compared to the first quarter last year and consequently we have revised our outlook for the total market downwards for the full year to 90,000 heavy-duty trucks, which is still a good market level.
The market in Japan increased sharply in the first quarter, partly due to pre-buy ahead of a VAT increase in April but also as a result of an improving Japanese economy. The outlook for the total market for heavy-duty trucks 2014 has been revised slightly upwards.
For 2014, the Volvo Group forecasts for the total truck markets in North America, Brazil, India and Japan have been changed as presented in the table above. Forecasts for the other truck markets have been kept unchanged compared to previous forecasts.
Truck order intake at 55,146 – book-to-bill of 115%
The total net orders declined by 10% in the first quarter compared with the year-earlier period. Net orders of 55,146 trucks and deliveries of 47,845 trucks resulted in a book-to-bill ratio of 115% for the Group’s wholly-owned operations.
Orders posted large regional differences in the quarter, where orders in Europe declined by 26% following the strong demand last year ahead of the introduction of the new Euro 6 emission regulation. The lower demand in comparison to the first quarter of 2013 is also explained by the fact that many Volvo customers last year took the opportunity to buy the old series of Volvo trucks before production was ended in Europe. In Russia there is currently hesitancy among customers as a result of the political situation surrounding the Ukraine.
In North America order intake continued to improve reaching 16,367 orders, an increase of 22%. In South America, orders were down by 30% compared with the first quarter of last year.
Compared with the first quarter of 2013 orders in Asia increased by 6%, mainly as a result of higher demand in Japan.
Deliveries rose by 25% in the first quarter
In the first quarter of 2014, the Volvo Group delivered a total of 47,845 trucks, which was 25% more than in the first quarter of 2013 but 22% fewer than in the fourth quarter of 2013.
Operating margin of 4.1%
During the first quarter of 2014, the truck operation’s net sales amounted to SEK 43,845 M, which was 18% higher than in the first quarter of 2013. Adjusted for changes in exchange rates net sales increased by 22% compared to the first quarter last year.
The truck operations posted an operating income of SEK 1,798 M in the first quarter, excluding charges of SEK 318 M related to the Group-wide efficiency program. In the first quarter of 2013, operating income amounted to SEK 115 M excluding restructuring charges of SEK 14 M. The operating margin, excluding restructuring charges, was 4.1%, compared with 0.3% in the year-earlier period. The improvement was mainly due to higher delivery volumes, improved price realization and better capacity utilization and productivity in the industrial system, which was partly offset by negative currency effects and higher costs for research and development as a result of reduced capitalization compared with the first quarter of 2013. The year-over-year impact from moving from net capitalization in the first quarter of 2013 to net amortization in the first quarter of 2014 amounted to SEK 857 M. Cash spend in research and development was reduced by SEK 187 M compared to the first quarter of 2013. Compared with the first quarter of 2013, operating income was negatively impacted by changes in currency exchange rates in an amount of SEK 872 M.