By Marie Mannes STOCKHOLM (Reuters) -Volvo Cars beat third-quarter profit forecasts on Thursday, despite tariffs and tough competition, as sweeping cost cuts delivered faster than expected results, sending its shares more than 25% higher. The company, based in Sweden but majority-owned by China’s Geely Holding, said it made an operating profit before one-off costs of […]
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Volvo Cars’ shares soar as profit tops expectations
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By Marie Mannes
STOCKHOLM (Reuters) -Volvo Cars beat third-quarter profit forecasts on Thursday, despite tariffs and tough competition, as sweeping cost cuts delivered faster than expected results, sending its shares more than 25% higher.
The company, based in Sweden but majority-owned by China’s Geely Holding, said it made an operating profit before one-off costs of 5.9 billion Swedish crowns ($627 million) in July-September, smashing analysts’ consensus forecast of 1.6 billion crowns, according to Bernstein.
This was despite a 7% drop in sales, with fully electric cars still accounting for less than a quarter of the total.
Volvo Cars shares were up 28% at 0743 GMT, on track for their best day for a year and a half.
CEO’S RETURN HERALDS CHANGE IN FORTUNES
The carmaker’s gross margin rose to 24.4% from the previous quarter’s 17.7%. CEO Hakan Samuelsson told Reuters that was due to a facelift for the best-selling XC60 model, big savings from cooperation with Geely’s supply chain, and the cost cuts.
“What we’re now seeing is really, wow okay, this is delivering faster than we thought and faster than we planned,” Samuelsson said of the cost reductions.
Samuelsson, having previously run Volvo Cars for over a decade, was brought back this year to help revive its share price. He has since installed a new finance chief, announced 3,000 job cuts, pulled earnings guidance and slowed investments.
Handelsbanken analyst Hampus Engellau said the improved results were largely due to the new management team.
“When Hakan rejoined as CEO I think he came in with open eyes, very much switching the focus for the group from growth and market share to cash flow and profitability,” Engellau said.
“This result is very much internally generated from the operations of the management team, they haven’t had much help from the market,” he said.
French rival Renault also reported quarterly results above expectations on Thursday.
LOWER US TARIFFS
Volvo Cars is one of the European carmakers most exposed to U.S. tariffs as most of its U.S.-bound cars are exported from Europe. However, it has recently taken steps to move production of some hybrids to America in the coming years.
Recent trade negotiations between the European Union and the U.S. resulted in a reduction of U.S. tariffs on European cars to 15% from August 1 retroactively, from 27.5% previously.
“We still face several challenges, including continued price competition and the effects of U.S. import tariffs,” Samuelsson said in a statement.
“However, the recent tariff agreement between the U.S. and EU offers much-needed clarity.”
($1 = 9.4155 Swedish crowns)
(Reporting by Marie Mannes. Editing by Susan Fenton and Mark Potter)