REFILE-UPDATE 2-Scania cuts production, jobs in ailing European market

Wed Jan 30, 2013 7:10am EST

(Refiles to fix Reuters instrument code in first paragraph)

* To cut European output by 15 pct in Q1

* Says output cut affects 700 staff

* Q4 operating profit 2.17 bln SEK vs forecast 2.48 bln

* Q4 orders top forecast on Brazil demand

* Shares down 1.3 pct, underperform sector

By Niklas Pollard and Helena Soderpalm

STOCKHOLM, Jan 30 (Reuters) - Truck maker Scania is cutting production and jobs in Europe after sluggish demand in its biggest market led it to miss quarterly profit forecasts despite a surge in orders from Brazil.

The Swedish group, majority-owned by Germany's Volkswagen, , said on Wednesday it was reducing daily production in Europe by 15 percent in the first quarter, with the loss of around 700 jobs.

The move is likely to set the tone for rivals across the region, where demand for commercial vehicles has crumbled amid prolonged economic weakness.

Industry data this week showed European sales of heavy trucks such as Scania's flagship R-series fell 9.4 percent last year and tumbled more than 20 percent in December.

Fiat Industrial, parent of rival truck maker Iveco, posts results on Thursday. Germany's Daimler, MAN SE and Sweden's Volvo all report next week.

Scania said its fourth-quarter operating profit fell to 2.17 billion Swedish crowns ($340 million) from 2.74 billion in the same period the previous year, missing analysts' mean forecast of 2.48 billion in a Reuters poll.

The group, which made about a half of its truck deliveries to Europe last year, said order intake in the region was unchanged in the fourth quarter, but its overall operating margin fell to its lowest for three years.

"The big disappointment during the quarter was profitability which I would say has to do with them being forced to give discounts on trucks and scale back of inventories," Handelsbanken Capital Markets analyst Hampus Engellau said.

Scania shares were down 1.3 percent to 136.3 crowns at 1115 GMT within a European automotive index down 0.2 percent.

STRENGTH IN NUMBERS

Mirroring the car industry, truck makers have been stepping up efforts to forge tie-ups to help them shoulder the costs of developing new vehicles to meet tougher environmental rules.

Last week, Scania's larger domestic rival Volvo laid claim to having overtaken the position of Daimler as the world's biggest heavy truck maker by striking a joint venture with China's Dongfeng Motor Group Co..

Scania, for its part, is in co-operation talks with MAN SE at the behest of Volkswagen, the auto giant that is parent company to both companies and which hopes to create a truck group strong enough to take on Volvo and Daimler.

Scania said it had taken steps to boost efficiency by rejigging its service network in some European markets, while it was also cautious about hiring throughout the group.

Across the Atlantic, though, things are looking better for the Swedish company, whose flexible production system and a focus on top-of-the-range vehicles has made it generally the most profitable of the major truck-making firms.

Orders in Latin America nearly doubled on the back of strong demand in Brazil and Scania said capacity utilisation in its production there was expected to rise in the early part of this year.

As a result, the company said overall orders for its trucks and buses jumped 24 percent in the quarter, much better than the 9 percent gain seen by analysts.

($1 = 6.3815 Swedish crowns) (Reporting by Niklas Pollard and Johannes Helena Soderpalm; additional reporting by Johannes Hellstrom; Editing by Patrick Lannin and Mark Potter)