UPDATE 2-Husqvarna warns on profit, cuts jobs and costs

(Adds analyst, CEO comments, background, updates share)

By Victoria Klesty and Niklas Pollard

STOCKHOLM, Sept 16 (Reuters) - Swedish garden tools maker Husqvarna (HUSQb.ST) issued a profit warning which sent its shares tumbling on Tuesday, blaming a worsening consumer market in North America and Europe and a weaker construction sector.

The maker of chainsaws, lawnmowers and other garden and construction equipment said it now expected operating income in the third quarter of about 300 million Swedish crowns ($44 million), down from 553 million a year earlier.

At 1105 GMT, the shares were down 7.8 percent at 49.1 crowns, having earlier fallen as much as 15 percent.

"I think the share price reaction is a little bit disproportionate considering the scope of what they're warning about," Nordea analyst Johan Trocme said.

"They're expecting (earnings) to be 160 million lower than our estimates and 200 million lower than consensus. But with this savings package they will save 300 million crowns per year and its size is more positive than the magnitude of the downside surprise regarding the third quarter."

Husqvarna, which has about 16,000 employees, said it will cut about 850 jobs and generate annual savings of about 300 million crowns.

"The third quarter marks the end of the gardening season, and the effect of a weak season has a strong impact on this quarter," Bengt Andersson, Husqvarna's chief executive, said in a statement.

PRICE HIKES

The company said it would not build inventories in anticipation of the coming season to the same extent as last year, but added that listings with major retailers for 2009 looked "very good", meaning there was scope to lift prices.

Andersson told Reuters in a telephone interview that he also expected the company to take market share.

"All in all, we believe in a margin improvement next year," Andersson said after the profit warning.

Husqvarna noted the third quarter accounted for a small share of annual sales and operating income, and that seasonal effects made results for the period volatile.

In July, Husqvarna reported a weak second quarter and warned there might be more pain to come. The global economy has remained sluggish with consumers and industry cautious.

The company said it had recorded lower sales and reduced output in the third quarter, mainly in mass market consumer products in North America and Europe, and tools for the construction industry.

Husqvarna estimates that more than nine-tenths of the world market for its products is located in North America and Europe, where customers have grown increasingly wary due to the growing financial crisis and an economic slodown.

It said it would adjust capacity at its plant in Huskvarna, southern Sweden, and relocate production to other units.

Husqvarna said the effects of its cost-cutting measures would be fully felt from the third quarter of 2009.

(Additional reporting by Simon Johnson and Katarina Gustafsson; Editing by Elaine Hardcastle/Simon Jessop)