Fourth quarter net sales rose 17% to SEK (Swedish Krona) 134.3bn, ignoring the effect of exchange rates. That reflects double digit growth in all regions, including a 19% increase in Volvo's biggest market, Europe.
On the product side, there was growth in all areas, including a 30% rise in Trucks to SEK87.3bn. There were record delivieries in the quarter (62,834). But the order intake fell 21%, reflecting ongoing supply chain constraints in Volvo's markets and the group's decision to selectively limit new orders because of cost inflation.
Demand outside China was ''stable'' for the Construction Equipment business. Buses continued to recover from the pandemic lows, with the net order intake rising 70% to 1,781.
Underlying operating margins fell to 9.1% from 9.8%. This was driven by energy costs, and material and supply chain disruption. The higher revenue meant underlying operating profit rose to SEK12.2bn from SEK10.1bn last year. This excludes costs of SEK630m relating to claims arising from the European Commission's 2016 antitrust settlement decision.
Overall, profits were lower than the market expected.
Volvo had net debt of SEK22.2bn as at the end of the quarter.
The group announced an ordinary dividend of SEK7.00 per share and an extra dividend of SEK7.00 per share.
The shares fell by 4.1% in early trading.
View the latest Volvo share price and how to deal
Our View
First things first. This isn't the car company you might be thinking of. Today, Volvo is a truck and industrial equipment giant. There are millions of Volvo trucks, buses and machines rumbling around.
The market has reacted negatively to the group's miss on profits at the end of the year. Higher raw material and research and development costs are all reasons behind this. Cost inflation and wider supply chain issues are problematic and likely to persist for a while. But that doesn't mean the investment case has veered off course.
Volvo is handling the situation well. Locking yourself into long-term contracts without knowing where costs are going to end up can be painful. So we think taking a more cautious approach to new orders is the prudent thing to do. Volvo is an expensive business to run at the best of times, so underlying operating margins of close to 10% are the norm.
Looking longer-term we admire the group's high barriers to entry - Volvo's manufacturing and supply chains are enormous, expensive and complex, helping to protect market share. Volvo has enviable visibility over demand. The order intake for trucks was well over 200,000 last year as customers replaced old trucks and expanded their fleets.
Volvo not only produces vehicles, but services them. A 24/7 global servicing support network is a serious asset. If your truckful of goods is stuck somewhere, you need to have faith it can get moving ASAP. That feeds into more reliable revenue. Services currently make up a small part of overall revenues, and is expected to increase to over 50% by 2030. We think this target is achievable.
The group's also benefiting from booming e-commerce (those extra online orders mean increased need for logistics). Volvo is also a leader in the electrification of heavy-duty vehicles, including trucks and buses. Volvo wants over 35% of its vehicle sales to be electric by 2030. We view being a front-runner of sustainable haulage a real plus point.
The steadier style of Volvo's revenue means it's able to pay dividends, supporting a 5.0% dividend yield. The proportion of the group's earnings paid as a dividend is low, which can make these payments more resilient in a downturn and provide scope for dividend growth. Please remember nothing is guaranteed. Overseas dividends can be subject to withholding tax which might not be reclaimable.
We view Volvo as a steady-Eddie with longer-term growth potential. There are some immediate challenges around supply chains and inflation, which the market has priced in with the price to earnings ratio a little way below the longer-term average.
Volvo key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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