A strong recovery in the second half of 2020, driven by increased activity in both infrastructure and construction, has propelled demand for equipment, according to Volvo Construction Equipment (Volvo CE). Low dealer inventory levels and the need to restock also contributed to an increase in order intake. Deliveries across all global regions increased, led by demand for large and medium-sized machines. The result was a 23% increase in Q1 2021 net sales for the company, and a significant 73% increase in order intake for the quarter.
During the first three months of 2021, Volvo CE saw net sales grow to SEK 24,742 M compared to SEK 20,148 M in Q1 2020, and slightly higher than the same period in 2019. Operating income rose to SEK 3,822 M, up from SEK 2,678 M in the same period of 2020.
“Earnings were positively impacted by higher machine volumes and capacity utilization in the industrial system, cost reductions and increased service earnings, which were partly offset by negative mix effects,” the company reports. “This was reflected in the operating margin, which at 15.4% was up from 13.3% in the same period the year before.”
The Q1 gains come on the heels of a 6% increase in the fourth quarter of 2020, and a 31% rise in the order book. Despite the increased demand in the latter part of the year, the full year 2020 saw net sales impacted by the global pandemic, dipping by 8% to SEK 81,453 M (88,606). Adjusted operating income fell to SEK 10,071 M (11,910), corresponding to an operating margin of 12.4% (13.4).
Growth in Most Global Regions
An increase in sales across all global market and segments helped Volvo CE reverse the pandemic’s negative impact and enable a strong financial result for the quarter. Deliveries of machines increased by 53% in Q1, with the largest increase seen in China due to governmental infrastructure investments.
Demand in China, the world’s largest construction equipment market, skyrocketed in the first two months of 2021, rising by 142% from the extreme lows brought on by COVID-19 in the first quarter of last year. The rest of Asia also saw a positive start to the year with a 16% improvement, particularly in key markets including India, Korea and South East Asia.
South America also proved strong, up 41% from last year, reflecting increased demand for commodities, Volvo CE indicates. “In North America, expectations for further government infrastructure investments are creating a positive sentiment among customers, leading to a 7% increase from Q1, 2020,” the company adds.
Unlike other regions, Europe saw a slow start to the year due to continued restrictions in key markets, such as France and Germany. It has since gained momentum, with net order intake increasing 87%, thanks to stronger demand in the latter half of the quarter. However, total market development in the region declined by 9%.
Positive Outlook
Melker Jernberg, Volvo CE president, sees the first quarter results as encouraging following a difficult 2020, and indicative of what may lie ahead.
“It is heartening to see demand increasing in the first quarter of this year, with sales up across all regions and markets,” he states. “We can take confidence that we have weathered a tough period for our customers, our employees and the wider industry and are beginning to now see higher activity.
“In many countries, we have seen increased investment in an aging infrastructure, something which we expect to continue for the future,” he continued. “Together with a high level of construction activity in several other sectors, this is driving demand for both new machines and services, reflected in both deliveries and order intake rising sharply for the first quarter.”
Information provided by Volvo Construction Equipment and edited by Becky Schultz.
