AB Volvo warns chip woes to linger after narrow profit miss

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FILE PHOTO: IAA truck show in Hanover
FILE PHOTO: The logo of Swedish truck maker Volvo is pictured at the IAA truck show in Hanover, September 22, 2016. REUTERS/Fabian Bimmer

July 20, 2021

By Niklas Pollard

STOCKHOLM (Reuters) -Sweden’s AB Volvo warned on Tuesday of more production disruptions and stoppages this year after chip shortages prevented the truck maker from fully capitalising on strong demand for its vehicles in the second quarter.

Operating profit at the maker of trucks, construction equipment, buses and engines nearly tripled to 9.73 billion Swedish crowns ($1.12 billion) from 3.27 billion a year ago, but slightly missed the 9.84 billion seen by analysts according to Refinitiv data.

A global shortage of semiconductors just as the market roared back after last year’s pandemic plunge has squeezed makers of heavy-duty trucks as well as smaller vehicles, crimping production, extending lead times and lifting costs.

Volvo, a rival of Germany’s Daimler and Traton, said it struggled with production stoppages of close to a month in the second quarter.

And while recovering strongly, the group’s reported sales and adjusted earnings remained below cyclically-high levels reached over the same period in 2019, before the pandemic hit.

“There will be further disruptions and stoppages in both truck production and other parts of the group in the second half of the year,” CEO Martin Lundstedt said in a statement.

Lundstedt said on a conference call that Volvo would seek to boost capacity in the second half, but cautioned supplies of components would set the limits. Volvo shares were down 3.9% by 0822 GMT.

“Volvo printed a good set of results, slightly below street estimates,” analysts at JPMorgan said in a research note.

“With limited visibility in the supply chain and semi-conductor shortages still impacting the industry (in the second half), we expect limited movement in consensus expectations.”

Meanwhile, demand for heavy-duty trucks is strong with a surge in online shopping due to the pandemic driving freight volumes and rates and emboldening fleet operators to move ahead with vehicle orders suspended after the virus first struck.

Volvo said order bookings of its trucks, also sold under brands such as Mack and Renault, soared 143% from a weak year-ago quarter and stood by forecasts for solid market growth in both Europe and North America this year.

The company also raised its 2021 outlook for construction equipment markets in both regions.

($1 = 8.6971 Swedish crowns)

(Reporting by Niklas Pollard, editing by Tomasz Janowski and Jason Neely)