Volvo shares slip 0.2% as truckmaker flags rising cost inflation

Volvo AB said current trading remains solid across its business units while warning that cost inflation is trending upward because of the Middle East conflict.

"We are starting to see an impact on raw material costs from the Middle East conflict," Chief Financial Officer Mats Backman said at the company's investor day on Wednesday.

In Europe, customer demand and deliveries are stable at good levels across all business units, the Swedish truckmaker said. In North America, demand remains strong and production is gradually beginning to increase. The company is working to build earnings resilience through cost control, disciplined pricing and growth in its service business.

The cost headwinds come as Volvo foresees long-term growth in global transport demand, with trucks and construction equipment expected to outperform historical growth rates. Shares of Volvo fell 0.2% in Stockholm trading.

Volvo, which also makes construction equipment, buses and engines, operates manufacturing plants across Europe, North America and Asia. Its truck division accounts for the majority of revenue, with the Volvo, Mack and Renault brands serving markets globally.

The service business, which includes maintenance, repair and financing, generates higher margins than vehicle sales and provides a more stable revenue stream through economic cycles. Volvo has been expanding these offerings to reduce earnings volatility.

The investor day statement did not provide specific financial targets or updated guidance. The company outlined plans to make earnings more resilient without disclosing margin targets.

The truckmaker's caution on costs mirrors broader concerns across European industrial companies facing input price pressure from geopolitical instability. The Middle East conflict has disrupted shipping routes through the Red Sea and pushed up energy costs, feeding through to raw material prices for manufacturers that rely on steel, aluminum and other commodities. European peers such as Daimler Truck and Traton have also flagged cost pressures from supply chain disruptions tied to the conflict.

The statement shows that Volvo's management sees solid near-term demand but is preparing for margin pressure from rising input costs. Investors will watch the company's second-quarter earnings report for quantified guidance on cost inflation and any pricing actions taken to offset it.

This article is for informational purposes only and does not constitute investment advice.