Truckmaker Volvo lifts market outlook as profit beats forecasts

By Niklas Pollard and Johannes Hellstrom

STOCKHOLM (Reuters) - Sweden's AB Volvo reported a bigger-than-expected rise in quarterly core earnings on Friday as stronger demand for heavy trucks more than offset costs stemming from strains on its supply chain.

Sweden's biggest manufacturer by sales also raised its outlook for truck markets on both sides of the North Atlantic this year and forecast a further strong recovery in sales of commercial vehicles in North America in 2018.

"These are blow-out numbers," Handelsbanken Capital Markets analyst Hampus Engellau said. Handelsbanken has a "Buy" recommendation on the stock.

Volvo shares gained 6 percent in early business, building on gains of 45 percent this year.

 

Volvo and rivals in the truck industry such as Germany's Daimler and Volkswagen have hit a sweet spot this year with rising or already robust demand in all major commercial vehicles markets.

The broad upturn in demand was also in evidence in German auto giant Daimler's quarterly results, also released on Friday, with a double figure rise in deliveries and 32 percent jump in earnings at its trucks division.

Yet the buoyant demand has also come at a cost, with strained supply chains leading components maker SAF-Holland to scale back its 2017 margin outlook this month, while Volvo's profitability was dented in the second quarter.

Volvo said stretched components supply had continued to have its impact in the third quarter, but with a 13 percent rise in truck deliveries and sharply higher earnings in its construction equipment arm, this was easily shrugged off.

Adjusted third-quarter operating profit at Volvo rose to 7.02 billion Swedish crowns ($861 million) from 4.85 billion crowns in the year-ago period and beat a mean forecast of 6.20 billion crowns seen in a poll of analysts.

"There are really no negatives here," Engellau said.

"Construction Equipment is really strong and the trucks business continues to deliver in a seasonally weak quarter. Also order intake is extremely strong and it seems demand will accelerate even further ahead."

Volvo has begun reaping the benefits of a 10 billion crown cost-cutting drive and set a target in August to reach its highest profitability since the sale of its car making arm to Ford nearly two decades ago.

Gothenburg-based Volvo said order intake of trucks at the group, which also includes brands such as Mack, Renault and UD Trucks in its stable, grew 32 percent in the quarter, beating the 15 percent rise seen by analysts.

($1 = 8.1513 Swedish crowns)

(Reporting by Niklas Pollard and Johannes Hellstrom; Editing by Subhranshu Sahu/Keith Weir)