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Order boom helps truck maker Volvo to raise market outlook
[STOCKHOLM] Swedish truck maker AB Volvo raised its outlook for commercial vehicles markets on both sides of the Atlantic as strong demand across most of its business helped it to produce a 30 per cent rise in fourth-quarter core earnings.
The company, in which China's Geely Holding is set to become second biggest shareholder by votes once authorities clear its purchase of an 8.2 per cent stake, also reported a bigger than expected jump in order bookings for its trucks.
Truck makers such as Volvo and German rivals Daimler and Volkswagen have been benefiting from rising or already robust demand across all major vehicles markets in recent quarters, a relatively rare occurrence.
Sweden's biggest listed company by revenue and staff raised its 2018 guidance for industry-wide sales of heavy-duty trucks in both Europe and North America and also lifted its outlook for demand in key construction equipment markets.
"Most truck markets are on high levels or in upward trends," Volvo CEO Martin Lundstedt said in a statement.
"In Europe, good freight environment, low fuel prices and low interest rates provide support to customer profitability and their demand for our trucks." Adjusted operating profit at the group, which also makes construction vehicles, buses and engines, rose to 7.33 billion crowns (S$1.22 billion) versus a year-ago5.66 billion to just miss a mean forecast of 7.39 billion seen in a poll of analysts.
The profit in the quarter was dented by an impairment of a customer contract of 308 million crowns in Volvo's Governmental Sales unit which was not included in the consensus estimates.
"This is a really strong report," Handelsbanken Capital Markets analysts Hampus Engellau said.
"Above all order intake is better than expected. They continue to show very strong growth in Europe in spite of tough comparison figures." The Swedish manufacturer said order intake of trucks at the group, which also includes brands such as Mack, Renault and UD Trucks, grew 29 per cent in the quarter, beating the 15 per cent rise seen by analysts.
The strong demand has put pressure on production and strained supply of components such as engines and axles, denting Volvo's profitability during most of last year as it sought to clear costly bottlenecks.
"With the high order intake we will continue to have a stretched supply chain," Mr Lundstedt said.
Fortified by a completed 10-billion-crown cost cutting drive, Volvo has seen its shares climb 43 per cent in the past year. But while the company has benefited from upbeat markets, the deck has been reshuffled in terms of its ownership.
In late December, activist fund Cevian announced the sale of its Volvo stake - the second biggest by votes after Industrivarden's - to Geely Holding.
With Cevian's exit, the main champion for splitting up the sprawling group, above all spinning out its construction equipment arm, has left the building while Geely's longer-term ambitions with the holding remain largely unclear.