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Volvo profit hits pothole
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July 20, 2000: 6:16 a.m. ET
2Q profits collapse at Swedish truckmaker as US market goes sour
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LONDON (CNNfn) - Volvo AB on Thursday reported a sharp deterioration in profit at its core trucks division during the second quarter, laying the blame on "sharply reduced demand" in the North American market.
Chief Executive Leif Johansson said in a statement the company had reacted quickly to the market's downturn by cutting output, although he warned the cutbacks "have cost a great deal of money over the short term." He said the industry was suffering from "sharply reduced demand, excess production and the risk of a price war."
The picture in Europe was gloomy too, he cautioned, as customers, especially fleet buyers, react to higher interest rates and fuel costs by exerting pressure on prices.
Volvo's revenue in the period slipped 1 percent to 33.50 billion Swedish crowns ($3.69 billion). Operating income rose 11 percent to 2.39 billion crowns, but that included one-time gains of more than 1 billion crowns. The truck unit's contribution crashed to 31 million crowns from 859 million crowns in 1999.
Volvo shares slumped 5 percent in Stockholm to 175 crowns.
The firm installed Tryggve Sthen as the new boss at its truck division at the beginning of June, and proclaimed its confidence in his ability to turn matters around, although profitability is not set to improve until the final quarter of the year.
"The program to restore Volvo Trucks to profitability has the highest priority," said Johansson.
Volvo is in the process of acquiring Renault's truck business for $1.4 billion in a stock, a deal that will leave the French firm owning 15 percent of Volvo. The purchase would make Volvo the largest truck firm in Europe, ranking second globally. Competition authorities have yet to give the go-ahead for the transaction.
The company's construction equipment subsidiary was the largest contributor to earnings in the second quarter of 2000, although its profits fell 6 percent from a year earlier to 740 million crowns. The company blamed the slowdown in the U.S. economy.
In the first half of the year Volvo's revenue rose 5 percent to 64 billion crowns, while operating profit rose 12 percent - excluding any contribution from the car division it sold to Ford Motor Co. (F: Research, Estimates) last year - to 3.81 billion crowns. That included one-time gains of some 1.3 billion crowns. 
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