Volvo profit beats forecast, raises European outlook

[STOCKHOLM] Truck maker Volvo reported stronger than expected quarterly core earnings on Wednesday as years of cost cuts lifted profitability on top of healthy sales, and raised its forecast for the European market this year.

Volvo, which competes with German rivals Daimler and Volkswagen's stable of truck brands, also said it saw signs of stabilisation in the contracting North American truck market with inventories of new trucks coming down.

Adjusted operating profit at Sweden's Volvo rose to 5.66 billion Swedish crowns (US$646.5 million) from a year-ago 4.57 billion to come in well above a mean forecast of 4.76 billion in Reuters poll of analysts.

Expectations that sweeping cost cuts will further boost profitability at Sweden's biggest listed company by revenues have helped lift Volvo shares 46 per cent over the past year, outpacing a 14 per cent gain for Stockholm blue chips.

Those gains have also raised the bar for the company to deliver even when demand is less buoyant.

Volvo, which sells under brands such as Mack, Renault and UD Trucks as well as its own name, said order intake of its trucks rose 10 per cent year-on-year in the fourth quarter compared with the 3 per cent decline seen by analysts.

After reaching their highest peak last year since the global financial crisis, European truck sales have been widely seen slowing in 2017 while North American demand, already depleted by high inventories and low freight rates, extends a two-year slide.

Gothenburg-based Volvo raised its forecast for the European heavy-duty truck sales this year, forecasting a roughly flat market of 300,000 vehicles versus the previous 280,000, and kept unchanged its outlook for North America.

The company also said it had undertaken a review of its construction arm, seen by analysts as a potential spin-off, identifying further potential for improvement. "To create further simplicity, transparency and flexibility, the intention is to increase Volvo CE's structural independence within the Volvo Group," Volvo said in a statement.

REUTERS