July 24, 2013 / 5:36 AM / in 4 years

Volvo shares rise as truck orders top forecasts

STOCKHOLM (Reuters) - World number two truck maker Volvo AB (VOLVb.ST) achieved stronger-than-expected orders and earnings in the second quarter as a recovery in demand gained pace in nearly all its main markets.

Shares in Sweden’s largest private sector employer and biggest company by sales rose 2.9 percent in early trade, extending recent gains to hit their highest level in more than a month.

Heavy truck markets are slowly picking up on both sides of the North Atlantic, as a need to replace ageing fleets bought during the boom years before the 2008 financial crisis overpowers lingering worries among haulers about the economy.

“After a weak start to the year, the group’s sales and profitability recovered during the second quarter of 2013,” said Chief Executive Olof Persson.

Volvo, the dominant global player in the industry alongside Germany’s Daimler AG (DAIGn.DE), said order intake grew by double-digits in all major markets with the exception of Asia, which suffered a modest decline.

It also said its operating margin widened to 4.5 percent from 0.8 percent in the first three months, topping a forecast 3.4 percent.

“It is above all profitability which is coming back very strongly for trucks,” said Hampus Engellau, analyst at Handelsbanken Capital Markets.

But the upturn remains fragile, as underlined by Daimler which said separately on Wednesday that while its trucks business sales had revived somewhat, demand remained weak and was expected to show only slight growth this year.

Yet despite conditions in the euro zone, an upturn in demand has led to order books growing in recent months, albeit from low levels, while a U.S. recovery is on firmer ground after a rough patch around the turn of the year as public spending was cut.

Government incentives have created a boom in Brazil, South America’s biggest economy and a major truck market, while activity in Asia has stabilized, giving order intake a further shot in the arm.

Volvo, which makes heavy-duty trucks under the Renault, Mack and UD Trucks brands as well as its own name, said order intake of its trucks rose 16 percent year-on-year in the second quarter - more than the 11 percent in the first quarter. Bookings in Europe, its top market, were up 13 percent.

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In its outlook for demand in major truck markets, Volvo stood by its forecast for slight growth in Europe, a stable North American market and a 20 percent expansion in Brazil.

Daimler, whose brands include Mercedes, Freightliner and Fuso, has been consistently taking a more cautious view on truck markets this year than its competitor and repeated it expected demand for medium and heavy trucks to grow only slightly this year.

    The German group, whose trucks business tends to be eclipsed by its larger autos unit, said it still saw markets in Europe and North America shrinking this year, while forecasting growth of up to 10 percent in Brazil.

    With a tentative European recovery gaining pace, truck makers have begun raising production.

    Volvo’s smaller domestic rival Scania AB SCVb.ST, controlled by Volkswagen AG (VOWG_p.DE), is ramping up output in two steps later this year after posting a 15 percent rise in order bookings of its trucks, well above forecast.

    Volvo said nothing new on production plans but noted the costs of ramping up production of a wide range of new vehicles would carry through into the coming months.

    “In the short term, this impacts profitability since costs will continue to be high at the same time as we have the usual vacation shutdowns in the third quarter,” the company said.

    The nascent upturn has yet to provide a solid boost to earnings at truck makers and Volvo said operating earnings fell to 3.26 billion crowns ($505 million) from a year-ago 7.71 billion, topping a mean forecast of 2.47 billion seen in a Reuters poll of analysts.

    Daimler, which had already unveiled preliminary second- quarter figures earlier this month, reported earnings of 434 million euros for its trucks division in the quarter, down from 524 million a year earlier.

    ($1 = 6.4531 Swedish crowns)

    Editing by David Holmes

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