February 5, 2016 / 7:03 AM / 3 years ago

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

STOCKHOLM (Reuters) - Swedish truck maker Volvo (VOLVb.ST) 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.

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

Volvo, a rival of German Daimler (DAIGn.DE) and Volkswagen’s (VOWG_p.DE) 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.

The North American outlook chimed with that of its rivals, with Germany’s Daimler forecasting a 10 percent decline for class 6-8 trucks and U.S. Paccar (PCAR.O) predicting a 12 percent drop in retail sales of class 8 trucks alone, the heaviest segment.

“During the first quarter we will adjust production to the new lower level of demand in North America and Brazil,” Lundstedt said in a statement.

Volvo said new orders for its trucks fell 20 percent in the quarter versus a 16 percent decline seen by analysts, hit by steep declines in the western hemisphere.

But in Europe, where the group had been expected to show some of its strongest margins, order bookings rose 20 percent.

“It is positive that they had an order intake rise of 20 percent in Europe,” Handelsbanken Capital Markets analyst Hampus Engellau said. “That is better than both Scania and Daimler in the quarter, showing they are winning market share.”

At its other major arm, its construction equipment business which accounts for a fifth of group sales, Volvo slumped to a loss versus an expected slim profit and retained a forecast for a continued slump of 10-20 percent in the Chinese market.

The company proposed an unchanged dividend of 3.0 crowns per share, below a forecast 3.18 crowns.

Volvo shares were trading 0.3 percent higher at 0828 GMT.

($1 = 8.4044 Swedish crowns)

Editing by Alistair Scrutton and Adrian Croft

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