Volvo CE Q3 sales drop

Volvo Construction Equipment’s net sales in the 3rd quarter dropped 9% year-on-year to €1.5 billion, while operating income fell to €75 million, compared to €162 million in the same period of 2011.

The manufacturer, which said it had seen a “significant slowdown in demand” in recent months, also reported an operating margin for the three-month period of 4.9%, compared to 9.9% for the same period last year.

Volvo Group president and CEO Olof Persson said the manufacturer had cut production rates in response to weakening market conditions.

“Volvo CE noted a decline in demand in an increasing number of markets throughout the world, higher inventories among our dealers in Europe and China and stiffer price competition. Against that backdrop we decided to reduce production rates. When markets subsequently weakened further, especially demand from the mining industry, we were forced to cut production further. As a consequence of the substantially reduced production, the under-absorption of costs in the industrial system was considerable.”

Mr Persson said this, combined with increased price pressures, had put the manufacturer’s construction equipment operating margin under increasing pressure.

“However, it is positive that we, in this declining market, have managed to reduce both our own inventories and those at our dealers for five consecutive months,” Mr Persson added.

Based on the weak trend in the global economy, higher industry inventories and increased price competition, Volvo CE said it expected the pressure on its earnings to continue in the fourth quarter. It added that it had started a programme to reduce overall costs.