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 Volvo, vying for dominance of the truck market with Germany's
Daimler <DAIGn.DE> and VW, also released better than expected
quarterly earnings two days ahead of schedule and said it would seek
an external partner for parts of its IT business.
While Persson's nearly four-year restructuring program has
contributed to some of the strongest earnings of his tenure,
Lundstedt is considered one of the most respected executives in the
trucking industry and shareholders hope he will improve the
company's global position.
Shares in Volvo, which have underperformed competitors' during what
Sweden's shareholders association has called "four lost years" under
Persson, shot up 12.4 percent to 113.7 crowns by 0847 GMT, higher
than any time during his helm.
"The action program that Persson initiated seems to be biting and he
should get credibility for that," Christer Gardell, managing partner
at Cevian, Volvo's second-biggest owner by votes, told Reuters.
"But at the same time we support the board's decision to appoint
Martin Lundstedt, who is widely recognized as one of the best
leaders in the trucking world. Now he has the assignment to make
Volvo the world's best trucks company."
Persson's plan aimed to cut 10 billion Swedish crowns ($1.2 billion)
in costs and boost profitability to the level of more nimble rivals
such as Scania, a task it has yet to achieve and so pressure from
shareholders has been building.
Chairman Carl-Henric Svanberg, who as recently as April 1 had said
he was confident in the work Persson was doing amid reports he would
get the axe, told a news conference Lundstedt was being brought in
to lead a new chapter for Volvo.
"We are now entering into a new phase. You can't reach world
leadership through just cost savings," Svanberg said.
The choice of a new CEO with such strong truck-making credentials is
likely to lead to expectations for a further streamlining of a group
that still generates nearly a third of revenues from other
businesses so that he can focus on trucks.
Investors like Gardell have made no secret further spin-offs in the
wake of the 2012 sale of Volvo's aero operation would be welcome,
though a downturn for construction gear makes a deal for the biggest
unit outside trucks unlikely in the short term.
Volvo shares have gained roughly half as much as the STOXX Europe
600 Industrial Goods & Services Index over the past five years and
underperformed the stocks of competitors such as Daimler and U.S.
Paccar Inc.
SCANIA SYSTEM
Lundstedt is a 25-year veteran at Scania, whose flexible production
system modeled on the ground-breaking techniques of Toyota in the
1990s has helped it outpace Volvo in terms of profitability over the
past decade.
[to top of second column] |
Scania's fine-tuned manufacturing, which uses a modular system that
is the back bone of car making across the globe, has long been the
envy of the trucking world and underpinned VW's decision to buy out
Scania last year.
Owners will be looking to Lundstedt to find similar answers for the
sprawling production base of Volvo that has historically struggled
to adapt to rapid swings in the highly cyclical demand for
commercial vehicles.
"Their (Scania's) success story was that they could continue being
the small company, only with a lot of sales," Hampus Engellau,
analyst at Handelsbanken, said.
"And Volvo probably lost that along the road-side in its empire
building, building huge walls of white-collar workers."
Lundstedt, whose easy-going manner endeared him to Scania staff and
helped smooth its integration into VW, will assume his role in
October, with CFO Jan Gurander serving as acting CEO in the interim.
Persson meantime delivered some of the strongest earnings of his
tenure. Sweden's biggest listed company by sales and top private
sector employer said adjusted operating profit rose to 4.60 billion
crowns from a year-ago 2.59 billion, topping a mean forecast of 3.47
billion in Reuters poll of analysts.
Volvo also kept unchanged its outlook for growing heavy-duty truck
markets in both Europe and North America this year, but further
lowered its expectations for a decline in Brazil and a sharp fall
for construction equipment in key market China.
To placate investors Volvo has touted the possible sale of parts of
its large IT unit while selling a stake in Indian partner Eicher
Motors.
Volvo, which also makes buses, construction equipment and boat
engines, said it was looking to bring in a partner for parts of its
IT business, with annual sales totaling about 1.5 billion crowns,
opening the door to a deal.
($1 = 8.6567 Swedish crowns)
(Additional reporting by Anna Ringstrom and Sven Nordenstam; Editing
by David Holmes and Anna Willard)
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