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Construction Safety Dispatch Articles
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Volvo AB (VOLVB), the world’s second- largest truckmaker, plans to target operating margins at the top of the heavy-equipment industry as it shifts its focus to profitability from sales growth.
Volvo will set profit goals based on the performance of its leading competitors in manufacturing trucks, construction equipment, buses and marine engines, the Gothenburg, Sweden- based company said today in a statement. The new targets will begin next year and replace goals set in 2006 that called for profit from industrial operations equivalent to at least 7 percent of sales and for annual sales growth of 10 percent.
“The goals show Volvo’s ambition” and will likely be “a good bit over 10 percent,” said Christer Gardell, whose Violet Partners LP is Volvo’s third-largest shareholder by votes. “It’s good with a clear focus on profitability.”
Volvo posted a first-half return on sales of 9.4 percent, up from 5.9 percent a year earlier, as revenue advanced 18 percent on a rebound in truck demand from the financial crisis. The Swedish company cut thousands of jobs during the last global economic recession to streamline its operations.
The company hasn’t yet formulated how the new targets translate into actual figures, spokesman Marten Wikforss said today by phone.
Stock Drop
The Swedish manufacturer declined as much as 4.3 percent and was down 3.9 percent at 69.70 kronor at 10:49 p.m. in Stockholm, valuing the company at 148.7 billion kronor ($21.8 billion). The Stoxx Europe 600 Index was down 3.4 percent after the Federal Reserve signaled “significant downside risks” in the U.S. economy and Moody’s Investors Service cut credit ratings on three banks.
“The new targets are pretty aggressive,” said Morten Imsgard, an analyst at Sydbank A/S, who has an “overweight” rating on the stock. The stock is down “more because of bad macro news that’s taking down the whole market today than because of the new targets.”
Volvo will set sales growth and margin targets for trucks and buses based on the performance of competitors, including Scania AB (SCVB), Daimler AG (DAI), MAN SE, and Fiat Industrial SpA’s Iveco. Volvo’s construction equipment and Penta marine engine business will be benchmarked against companies including Caterpillar Inc. (CAT), Deere & Co. (DE) and Fiat Industrial’s CNH.
“While growth will remain important in the future, the board is of the opinion that the prerequisites are now in place to also set new profitability targets,” Chairman Louis Schweitzer said in the statement.
Source: Ola Kinnander, Reuters
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