Volvo AB boosted its forecast for truck markets in the U.S. and Europe this year as low fuel prices and interest rates push demand, a development that’s expected to put more strain on an already tight supply chain.
The world’s second-biggest truckmaker raised its expectation for industrywide North American deliveries by 7 percent and the European market by some 3 percent as freight transport expands. New sales will continue to stretch Volvo’s ability to fill orders, which already raised manufacturing costs last year, the company said Wednesday in a statement.
“Most truck markets are on high levels or in upward trends,” Martin Lundstedt, chief executive officer of Gothenburg, Sweden-based Volvo, said. “With the high order intake we will continue to have a stretched supply chain.”
Buoyant truck markets and recovering construction equipment demand are bringing Volvo closer to a goal of lifting operating profit consistently above 10 percent of revenue. Efforts to improve profitability, including the elimination of thousands of jobs, were championed by activist shareholder Cevian Capital AB, which also pushed for a further streamlining or breakup. The Swedish investment firm, saying the “timing is good,” agreed in December to sell its stake to Zhejiang Geely Holding Group Co., the Chinese owner of the truckmaker’s former Volvo Cars business.
Highlights from Volvo’s fourth-quarter report:
- Operating margin widened to 8% vs 6.9%
- Truck orders jumped 29%
- Adjusted EBIT rose 30% to 7.33 billion kronor ($932 million) vs 7.29 billion kronor analyst estimate
Volvo also increased its forecast in most regions for total demand of machinery used in mining and road works, after fourth-quarter orders surged 48 percent. Demand in China could rise as much as 20 percent this year, Volvo said, as an increase in commodity prices encourages mining customers to expand.
