Slow European recovery takes shine off Volvo second-quarter profit rise
By Niklas Pollard and Johannes Hellstrom
STOCKHOLM (Reuters) - Global truck maker Volvo posted a smaller than expected rise in core earnings on Friday as a slower than expected pick-up in demand in its biggest market, Europe, had left it with over-capacity in its production.
But the company, Sweden's biggest by sales and top private sector employer, also said it was slightly ahead of plan with efforts to secure better prices for its trucks and bolster profit margins in its biggest unit.
Volvo, vying for market leadership with Germany's Daimler and Volkswagen's Scania and MAN brands, said operating profit excluding restructuring charges rose to 4.3 billion crowns (£367.74 million) versus a year-ago 3.3 billion and a forecast 5.0 billion in Reuters poll of analysts.
Truck makers have seen North American sales accelerate this year as the economy picks up while the need to replace ageing fleets has taken some of the edge off a hangover in Europe from a buying spree of old truck models ahead of new emission rules.
Volvo, which makes heavy-duty trucks under the Renault, Mack and UD brands as well as its own name, said order intake of its trucks fell 6 percent year-on-year in the second quarter, steeper than the 3 percent fall seen by analysts. "Following the weak first quarter, the European market recovered gradually during the second quarter, but the improvement started somewhat later than we had anticipated," Volvo said in a statement.
"Toward the end of the quarter the order intake increased and the fill rate in our plants has improved ahead of the fall."
Volvo stood by its 2014 forecasts for truck markets across the world, implying decent growth in North America and a small decline in Europe due to the weak initial months of the year.
Looking beyond the swings in market demand, Volvo is under investor pressure to show that a drive to boost profitability, which has historically lagged nimbler rivals such as Scania, is beginning to yield significant results.
Christer Gardell, co-founder of activist investor Cevian Capital which is Volvo's second biggest owner by votes, said only this week the truck maker should finish off 2014 with a double-digit operating margin.
Volvo's operating margin hit 4.9 percent in the second quarter versus a year-ago 4.5 percent, still a far cry from the nearly 9 percent it had when Chief Executive Olof Persson launched his efficiency scheme in 2012.
(Reporting by Niklas Pollard and Johannes Hellstrom; Editing by Alistair Scrutton)
