Volvo profits rose 28 percent; strong sales in emerging markets

Volvo maintained its outlook for the year, expecting the European truck market to grow by 10 percent this year, and the North American truck market to stay on the same level as in 2007.

By LOUISE NORDSTROM
The Associated Press

7/23/2008

STOCKHOLM, Sweden — Swedish truck- and bus-maker Volvo AB on Wednesday reported a 28 percent rise in second-quarter net profit, citing higher sales in Eastern Europe, South America and Asia, but dismayed investors by saying European orders were weakening in an uncertain economy.

The Goteborg-based company also maintained its outlook for the year, expecting the European truck market to grow by 10 percent this year, and the North American truck market to stay on the same level as in 2007.

Volvo said profit for the three-month period came to 5.1 billion kronor (US$855 million), up largely from 4 billion kronor in the second quarter a year ago.

Sales in the quarter shot to 80.4 billion kronor (US$13.5 billion), compared with 71.4 billion in the same three months in 2007. Aside from North America, Volvo said that sales in Japan had remained weak.

Operating margin rose to 8.9 percent from 8.6 percent, boosted mainly by favorable developments in the truck business, its construction equipment unit and Volvo Penta marine engine and industrial power systems business.

Volvo said it still sees rising costs in raw materials and components, and therefore plans to intensify its purchasing efficiency, increase productivity in manufacturing and cut other costs to offset them.

Despite the upswing in profits, Volvo shares dropped 3.7 percent to 72.50 (US$12.15) in early trade on the Stockholm stock exchange.

Market watchers said the fall was mainly due to weaker European order bookings in the group’s truck operations and a statement by the company’s Chief Executive Leif Johansson saying the trend had increased in the quarter.

“The caution among customers is attributable to increased concern about the future economic trend in Europe, and at the same time the increasingly higher fuel prices are putting pressure on their profitability in the short term,” Johansson said.

European order bookings in the unit fell around 54 percent to about 21,950 trucks in the quarter, Volvo said.

Evli Bank analyst Michael Andersson said the report was more or less in line, with better-than-expected margins but somewhat disappointing sales.

“It was pleasing to see the margins,” he said. “That was a great positive.”

But, he noted, “arrows are pointing in pretty much all directions right now,” referring to the company’s falling European order bookings.

“It’s really worrying. They earn most of the money in Europe,” he said.

Volvo has more than 100,000 employees. It sold its car division to U.S.-based Ford Motor Co. in 1999.