Volvo Construction Equipment (Volvo CE) has announced an 11% increase on sales for the first quarter of 2005, with sales rising to SEK (Swedish Krona) 7,182 million. When adjusted for currency effects and the divestment of the LB Smith dealership in North America, net sales were up by 20%. The increase in sales occurred despite a slight reduction in the overall size of the company’s worldwide market.
Operating income was also up strongly, rising 59% to SEK 558 million, from SEK 352 million in the same period in 2004. The operating margin also significantly increased to 7.8% up from 5.4% in Q1 last year. Both operating income and margin rose despite an increase in the price of raw materials, notably steel and tires. These higher costs were offset by volumes, price increases and improved product mix, as well as cost reductions. In terms of currency exposure, Volvo CE continues to examine ways in which to balance the impact of currency fluctuations through sourcing of materials and additional production in regions that use, or are pegged to, the dollar.
Most of the world market is growing
Sales in Europe were up 11%, while North American sales grew by 22%, and South American sales were up by nearly 30% when compared with Q1 2004. Asia was the only region to see a reduction in Volvo CE sales (-23%), caused primarily by a reduced demand for excavators in China. This decline was the result of the Chinese government’s recent initiatives to bring discipline to economic growth in the country.
The growing importance of excavators to Volvo CE was underlined by the launch of the new Volvo EC700B (70-ton) excavator at the ConExpo 2005 trade exhibition in Las Vegas, Nev., in March and the start of production of other crawler excavators in the company’s product line at the company’s facilities in Konz, Germany. The Volvo EC700B will be produced in Korea, with deliveries beginning in late 2005 and will be fitted with the company’s new generation engines with V-ACT technology, which meet Tier 3 emission regulations.
Looking forward, Volvo CE’s orders at the end of the first quarter were over 20% higher on value than at the same point a year earlier. Included were orders for more than 120 Volvo motor graders to be used for winter maintenance of Turkish state highways. The company will continue its focus on dealer development and the international expansion of the Volvo Rents network.
While the total world market size for heavy and compact construction equipment fell by 2% in the first quarter 2005 (a result of a 27% market size reduction in Asia), Western Europe grew by 6%, North America by 11% and other markets by 22%. Market demand for heavy equipment grew more than compact equipment during the quarter. Generally, market conditions continue to be positive. The North American market for the full year of 2005 is expected to settle between 5-10%, while 5% is the estimated figure for Europe and other markets, excluding Asia.