Volvo readies for U.S. slowdown as fourth-quarter profit just lags

Fri Feb 5, 2016 3:32am EST
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By Niklas Pollard and Johannes Hellstrom

STOCKHOLM (Reuters) - Swedish truck maker Volvo (VOLVb.ST: Quote) forecast a steeper than expected slowdown in the North American heavy-duty truck market this year and said it would cut production there after posting a slightly smaller than predicted rise in fourth-quarter earnings.

Volvo, a rival of German Daimler (DAIGn.DE: Quote) and Volkswagen's (VOWG_p.DE: Quote) truck brands, is contending with falling demand for commercial vehicles in the United States and Brazil and a plunge in purchases of its construction equipment in China.

While European truck sales are growing, the group's ability to parry downturns elsewhere is a test for the leaner and meaner company Volvo has sought to create through years of cost cuts, targeted to reach 10 billion crowns ($1.17 billion) this year.

Sweden's biggest company by revenues said adjusted operating profit rose to 4.57 billion crowns ($543.76 million) from 3.02 billion a year ago, just lagging a mean forecast of 4.72 billion in Reuters poll of analysts.

Gothenburg-based Volvo said the cost cuts to lift profitability closer to the level of nimbler rivals such as VW's Scania, and which have seen about 5,000 jobs cut across the group, were nearing their end.

"We now enter the next phase," said new Volvo CEO Martin Lundstedt, the former Scania boss appointed last year after Olof Persson was sacked amid impatience over progress on the vast efficiency drive.

A slowing U.S. economy, weak freight data and destocking have hit truck orders in recent months though Volvo's sales, working off a hefty backlog, have so far held up well. In Europe, a recent bright spot for many manufacturers, orders remain robust.

Volvo, which sells trucks under the Mack, Renault and UD brands as well as its own name, raised its European truck market outlook but scaled back expectations for both Brazil and North America, where it now forecasts a 14 percent fall.   Continued...

A Volvo logo is pictured at the Jacob Javits Convention Center during the New York International Auto Show in New York in this April 16, 2014 file photo.  REUTERS/Carlo Allegri/Files