Bloomberg News

Volvo Rises After Forecasting North American Truck Sales to Gain

October 25, 2011

Oct. 25 (Bloomberg) -- Volvo AB, the world’s second-largest maker of commercial vehicles, advanced as much as 3.5 percent after forecasting heavy truck sales in North America will rise 20 percent next year.

Third-quarter truck orders rose 18 percent as purchases in North and South America helped offset slowing demand in Europe and Asia, the Gothenburg, Sweden-based company said today.

Chief Executive Officer Olof Persson, who was construction- equipment chief before starting as CEO on Sept. 1, said the truckmaker is now taking orders for the beginning of next year in North America. In Europe, Volvo has seen a “slight slowdown” in bookings recently, he said.

“They delivered pretty strong sales numbers and had a nice order intake in the third quarter,” said Morten Imsgard, an analyst at Sydbank A/S in Aabenraa, Denmark, who has an “overweight” rating on Volvo.

Volvo climbed as much as 2.75 kronor to 82 kronor and was up 2.9 percent to 81.45 kronor as of 12:24 p.m. in Stockholm trading. The shares have dropped 31 percent this year, valuing the truckmaker at 174 billion kronor ($27 billion).

Persson aims for the manufacturer to target operating margins at the top of the heavy-equipment industry as it shifts its focus to profitability from sales growth. Volvo, the maker of Mack trucks in North America and Renault trucks in Europe, on Oct. 4 announced a reorganization of the heavy-duty vehicle business along geographic regions rather than brands.

Third-quarter net income gained 36 percent to 3.83 billion kronor. Profit missed the average estimate of 3.99 billion kronor in a Bloomberg survey of 15 analysts. Sales rose 15 percent to 73.3 billion kronor.

Sales Forecast

The truckmaker, along with predicting the industrywide sales increase in North America next year, cut the 2011 forecast for the region to 210,000 vehicles from between 230,000 and 240,000 as a production ramp-up takes longer than expected.

Volvo said European deliveries this year will reach 240,000 vehicles, at the high-end of the previous forecast, and then fall 10 percent in 2012. The truckmaker plans to reduce European production rates at the beginning of next year, it said.

Volvo won’t extend temporary contracts in 2012 for between 400 and 450 workers in its Swedish truck operations in response to the expected slowdown, Persson said in an interview.

The company, which is also reviewing whether to take similar measures at its Renault truck brand, has about 19,000 workers on temporary contracts, out of a total workforce of 115,000, Persson said.

“There’s a big uncertainty surrounding demand in Europe, and for next year Volvo is pretty negative on that region,” said Niclas Hoglund, a Swedbank AB analyst who recommends investors buy the stock.

Swedish rival Scania AB last week said that third-quarter net income rose 2 percent to 2.34 billion kronor as sales climbed 14 percent to 21.1 billion kronor. Demand started declining toward the end of that quarter in southern Europe and the Middle East, Soedertaelje, Sweden-based Scania said. The Swedish company plans to reduce production starting next month.

Daimler AG, the world’s largest truckmaker, will publish figures on Oct. 27, and MAN SE will report results Nov. 2.

--Editors: Chad Thomas, Chris Reiter

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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