STOCKHOLM Swedish truck maker Volvo VOLVb.ST warned of a rough start to 2013 after weak demand in its main markets left factories running at half speed and pushed it into a heavier than expected quarterly earnings fall.
Volvo, which only weeks ago laid claim to have dethroned Germany's Daimler DAIGn.DE as the world's biggest manufacturer of heavy trucks on the back of a joint venture in China, said that weak orders at the end of 2012 meant the first quarter would be difficult.
"Profitability will be affected by low capacity utilisation, high spend levels in research and development and costs associated with the launch of new products," Chief Executive Olof Persson said in a statement.
"However, we expect market conditions to gradually improve during the course of 2013 when economic growth across the world gains momentum."
Heavy-duty truck makers have run into tougher times in recent quarters as the deep economic downturn in Europe and sluggish activity in North America have weighed heavily on the highly cyclical demand for commercial vehicles.
Volvo's fourth-quarter operating earnings tumbled to 1.12 billion Swedish crowns ($176.52 million) from the previous year's 6.96 billion, well below a mean forecast for 2.19 billion seen in a Reuters poll of analysts.
Earnings were hit by weak use of capacity at many of its plants and restructuring charges totalling 990 million crowns, against the 565 million crown hit expected by analysts, one of whom said that the market might still take some solace from the results.
Volvo, which makes trucks under the Renault, Mack, UD Trucks and Eicher brands as well as its own name, has been cutting shifts and inventories because of weaker demand but stood by a forecast for flat 2013 markets in Europe and North America.
It also raised its forecast for the Brazilian market, where government incentives have boosted demand, by 10,000 trucks to about 105,000 this year.
ORDERS SLIDE SLOWS
Truck orders at the Gothenburg-based company fell 10 percent year on year in the final quarter of last year, compared with a 13 percent fall forecast by analysts and a 25 percent plunge in the preceding quarter.
"The important thing here is that order intake is better than expected and that they maintain the outlook for Europe and North America, which is positive," Handelsbanken Capital Markets analyst Hampus Engellau said.
Last week, Volvo's smaller rival Scania SCVb.ST unveiled a surprisingly strong rise in order bookings for the final months of last year, but only thanks to the surge in demand from Brazil.
Daimler and MAN SE MANG.DE, which like Scania is controlled by Volkswagen VOWG_p.DE, both release their reports later this week.
Amid the market doldrums, truck makers, have been emulating the car industry's increasing efforts to forge tie-ups that can help them to cope with the growing costs of developing new vehicles, not least to meet tougher environmental rules.
One such deal is Volvo's joint venture with China's Dongfeng Motor Group Co. 0489.HK, announced last month. The deal, if approved by Chinese authorities, would allow the group finally to secure a strong position in China, where it had a failed attempt to link up with another domestic player a decade ago.
The past year has been a pivotal one for Volvo which, besides its move into China, saw the exit of its main owner French car maker Renault RENA.PA and the launch of the new Volvo-branded FH-series truck, the group's biggest ever investment.
($1 = 6.3449 Swedish crowns)
(Additional reporting Johannes Hellstrom; Editing by Patrick Lannin and David Goodman)