Volvo soars after reporting record first quarter

Oslo — Volvo reported a record first-quarter profit, a preliminary filing shows, as the truck maker boosted revenue and margins despite supply bottlenecks and cost inflation, sending its shares 9.6% higher in early trade on Wednesday.

Its adjusted operating profit rose 45% to 18.4bn kronor ($1.76bn) for the three months to end-March, well above the 12.9bn kronor forecast by analysts surveyed by Refinitiv Eikon.

The Swedish company had said as recently as January it expected “disturbances, stoppages and extra costs” to persist, with soaring inflation and the energy crisis adding to the pain.

Volvo didn’t elaborate on what had spurred the turnaround; neither did it provide a profit outlook in its preliminary earnings that were released late on Tuesday. The group declined to comment further.

“We believe this quarter was influenced by price increases and [a] much better supply chain situation leading to less stop-and-go on the production line, allowing the firm to deliver very strong results,” analysts at JPMorgan said in a research note.

Volvo and rivals such as Germany's Daimler Truck and Traton have struggled with semiconductor shortages and broader supply chain issues, and strained freight capacity stemming from the Covid-19 pandemic and the war in Ukraine.

Volvo’s results could signal a broad improvement for the industry, with particularly positive implications for Daimler Truck, Traton and Italy’s Iveco as well as for their suppliers, JPMorgan said.

Shares in Daimler Truck and Traton were up 3.5%, and Iveco was 2.3% higher.

Jyske Bank said in a research note that while the earnings were strong, it was still worried that Volvo’s order intake could fall and that its customers could see stagnant activity amid global economic weakness.

Volvo’s preliminary net sales for the quarter rose to 131.4bn kronor from 105.3bn kronor, topping the 118.6bn kronor forecast by analysts.

Its adjusted operating margin rose to 14% from 12% and earnings at the group’s two major divisions, truck making and construction equipment, showed progress.

Net sales in the truck segment rose to 89.6bn kronor from 69.6bn kronor, beating a forecast of 79.7bn kronor.

The division's operating profit jumped to 12.7bn kronor from 8.7bn kronor. Analysts expected a decline to 8.4bn kronor.

Daimler Truck said last month its outlook had improved and that its profit would increase this year, but the company's share price still fell on concerns that inflation would weigh on its margins.

Reuters