Volvo Construction Equipment experienced a significant improvement in both sales and income during the first quarter of 2011 as the total world market for construction equipment increased by 51% between January to March, when compared to the same period the year before. The company also became the largest manufacturer of wheel loaders and excavators in China during the period.
The company's net sales during the first three months were driven strongly by surges in demand in Asia and South America, rising 41% to $2.62 billion ($1.85 billion in Q1 2010). When adjusted for currency movements, sales out-performed the wider market, rising to 53%. Volvo Construction Equipment also saw a leap in profitability during the first quarter, with operating income improving by almost 70% to $284 million, up from $167 million in the same period last year.
Reinforcing the underlying strength of the business, operating margin was also strongly improved at 10.8% during the first three months, up from 9.0% during the same period in 2010 – and the highest ever for a first quarter. This improved position was not only the result of higher sales, but also due to cost reduction activities, lower breakeven point and better cost absorption via increased production activity. The value of Volvo Construction Equipment's order book on 31st March 2011 was also significantly improved, 40% higher than on the same date in the previous year.
These results come amid continuing improvements in the market situation. Europe and North America both saw considerable sales increases during the first quarter; of 57% and 59% respectively. These were supported by strong increases in Asia, which rose by 54%, driven by a charging Chinese market that grew by an incredible 70%. South America also performed well, rising by 38%, while Other Markets grew by a more modest 3% during the period.
The prospects for the rest of the year are also improving, with the total market expected to grow by between 20-30% during 2011. Expectations for both Europe and North America have again been revised upwards; with Europe forecast to grow by 10-20% (previously forecast 5-15%) while North America is expected to rise 25-30% (previously forecast 20-30%). Hopes for China have also been marked up, with the country now expected to grow by between 20-30%, up from the 5-15% previously stated. The total Asian market is forecast to grow by 10-20%, while South America is expected to expand by between 5-15%.
It was an exciting quarter for the company, which saw the introduction of over 50 new models to its dealers and customers in Europe and North America. Added to this Volvo became the largest producer of excavators and wheel loaders in China, and its new L220G wheel loader won the coveted Red Dot design award. The company also unveiled plans to invest $100 million in its Shippensburg facility in the US and start production of wheel loaders, excavators and articulated haulers at the site. There was also a change of leadership announced during the first quarter; with Pat Olney replacing Olof Persson as President of Volvo Construction Equipment on May 1st, as Mr. Persson takes up his new role of Executive Vice President and deputy CEO of the Volvo Group.
"We have seen the favorable trend continue in both the Chinese and Brazilian markets, while the recovery in North America and Europe is becoming increasingly clear," says Olof Persson. "We are in an intense period of product renewal, which will contribute to further strengthen our competitiveness."
