Booming demand lifts AB Volvo profit, straining supply chain

STOCKHOLM (Reuters) - Sweden's AB Volvo saw strong demand for trucks and construction equipment boost earnings more than expected in the first quarter but cautioned the boom was putting its supply chain under pressure.

Truck makers such as Volvo and its German competitors Daimler and Volkswagen are enjoying brisk business as fleet buyers step up purchases during what many analysts expect to be the peak year of the current demand cycle.

Volvo, which is the first of Europe's major truck makers to report on the first quarter, raised its guidance for the North American heavy-duty truck market this year as well as for industry-wide truck sales in India.

Operating profit at the group, which also makes construction equipment, buses and engines, rose to 8.30 billion crowns ($976 million) from a year-prior 6.83 billion crowns to beat a mean forecast of 8.17 billion crowns seen in a poll of analysts.

Bolstered by a completed 10 billion crown cost-cutting scheme, Volvo has seen its profitability and share price climb over the past year.

In the first quarter, its operating margin rose to 9.3 percent from 8.9 percent, but fell shy of the 9.5 percent seen by analysts as costs to cope with a stretched supply chain dented profitability in its trucks business.

"Looking ahead, the strong order intake means that the supply chain constraints and associated higher costs will remain in the near-term," Volvo Chief Executive Martin Lundstedt said in a statement.

The Gothenburg-based manufacturer said order intake of trucks at the group, which sells under brands such as Mack, Renault and UD Trucks as well as its own name, grew 29 percent in the quarter, beating the 21 percent rise seen by analysts.

While the demand outlook could hardly be rosier, Chinese carmaker Geely's purchase of shares in Daimler and a yet-to-be closed deal for a stake in AB Volvo has left the fierce rivals facing the unaccustomed prospect of having the same major owner.

($1 = 8.5082 Swedish crowns)

(Reporting by Niklas Pollard and Johannes Hellstrom)