Truckmaker Volvo beats earnings forecast, sees U.S. market weaken

Tue Jul 19, 2016 5:57am EDT
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By Niklas Pollard and Johannes Hellstrom

STOCKHOLM (Reuters) - Swedish truckmaker Volvo (VOLVb.ST: Quote) reported better than expected second-quarter earnings on Tuesday as cost cuts and rising European sales helped fortify it against slumping U.S. demand for commercial vehicles.

Heavy-duty trucks, where Volvo is competing with Germany's Daimler (DAIGn.DE: Quote) and Volkswagen (VOWG_p.DE: Quote), are benefiting from strong demand across Europe while battling downturns across the Atlantic.

Volvo, which sells trucks under the Mack, Renault and UD brands as well as its own name, scaled back its outlook for North America, saying it expected industry wide sales of 240,000 trucks, down from a forecast for 250,000 given in April.

Weaker markets in the United States and also China, where sales of construction equipment are falling, will test the new leadership team's skill in boosting profitability.

"In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development," said CEO Martin Lundstedt, a former Scania boss appointed last year. Scania had long boasted some of the best profit margins in the business.

Gothenburg-based Volvo said order intake of its trucks fell 8 percent in the second quarter compared with a 1 percent drop seen by analysts. A 29 percent fall in North American truck orders led the decline.

Volvo shares rose 0.8 percent by 0756 GMT (03:56 a.m. EDT), outpacing a 0.7 percent fall in the in the STOXX Europe 600 Industrial Goods & Services Index . The stock is up 12 percent so far this year compared with a 2 percent drop for the index.

"The earnings are really good, and what stands out is primarily the 10 percent operating margin in trucks despite them scaling back output in North America," Handelsbanken Capital Markets analyst Hampus Engellau said. "This is exactly what one wanted to see."   Continued...

The logo of Volvo is seen on the front grill of a Volvo truck in a customer showroom at its company headquarters in Gothenburg September 23, 2008. REUTERS/Bob Strong/File Photo