Volvo Group has announced its third quarter (Q3) 2020 financial results.
“In Q3, utilization of trucks and machines gradually improved as COVID-19 restrictions were eased. Towards the end of the quarter transport activity was back on roughly the same level as a year ago in most markets. This led to an improved sentiment among our customers, which is reflected in increased order intake for trucks, engines and construction equipment as well as a gradually improving service business. In the last two quarters, our organization and business partners have shown great volume flexibility by first handling a dramatic volume decline and then a steep recovery with good productivity maintained. However, the weak order intake in the previous quarter impacted the group’s net sales in Q3, which amounted to SEK 76.9 billion – 16% lower than a year ago adjusted for currency. Our service business is more stable, with currency-adjusted revenues coming down by only 1% compared to Q3 last year and with a sequential improvement. Despite the sales decline we achieved an adjusted operating margin of 9.4% (11.0) thanks to significant cost reductions,” says Martin Lundstedt, President and CEO.
- In Q3 2020, net sales amounted to SEK 76.9 billion (98.7). Adjusted for currency movements, net sales decreased by 16%.
- Adjusted operating income amounted to SEK 7,217 M (10,885), corresponding to an adjusted operating margin of 9.4% (11.0).
- Reported operating income amounted to SEK 7,508 M (10,885).
- Currency movements had a negative impact on operating income of SEK 1,499 M.
- Diluted earnings per share amounted to SEK 2.81 (3.67).
- Operating cash flow in the Industrial Operations was positive in an amount of SEK 11,712 M (1,831).
Construction equipment business sees rebound in activity
Improving customer sentiment saw demand for construction equipment and services recover strongly in the third quarter of 2020, particularly in China, helping Volvo Construction Equipment (Volvo CE) post improvements in sales, orders and machine deliveries in the period. While net sales in the third quarter decreased by 2% to SEK 17,619 M (17,921), when adjusted for currency movements they were up 6% in the period. Adjusted operating income was also slightly down, at SEK 1,963 M, compared to SEK 2,180 M in the corresponding period in 2019. This equated to an operating margin of 11.1% (12.2%). Net order intake in the third quarter increased by 40% compared with the same quarter in 2019. Deliveries increased by 20%, to 19,774 machines, in the third quarter, mainly driven by higher sales in China.
Most markets recovered well from the effects of the COVID-19 pandemic in the third quarter, with machine utilization at the end of the period at almost 2019 levels. That said, the ongoing uncertainty created by the pandemic weighed on the European market, which up to the end of August was down by 19%.The North American market was also down by 19%, while South America was up 11%, albeit from very low levels in 2019. In Asia (excluding China), the total market was down 13%. The Chinese market recovered strongly from the impact of the pandemic, driven by government stimulus measures, prompting an increase in demand of 22% in the period.
"After the sharp COVID-19 triggered downturn of Q2 we saw construction activity gradually improve across most markets in the third quarter," comments Melker Jernberg, President of Volvo CE. "Demand was particularly strong in China, the world’s biggest market, and here we continued to grow our market share. With continuing uncertainty due to the ongoing spread of the pandemic, we will maintain a tight focus on cost control, and prioritize the health and safety of colleagues, customers and business partners."
In line with the company’s policy of concentrating on core product groups, Volvo CE divested its North American Blaw-Knox paver range during the third quarter. It also announced that the first deliveries of its all-electric compact machines would begin in UK, France and Germany in the coming weeks.