Volvo announces jump in third quarter profits

Volvo exceeds expectations with its third quarter profits. But North American demand is set to slump in the first part of 2007.

Swedish truck maker Volvo AB on Tuesday announced a 34 percent jump in third quarter profits to 3.939 billion Swedish kronor (428 million euros, 537 million dollars), above market expectations.

Over the same period, sales rose 9.0 percent to 57.426 billion kronor (6.246 billion euros).

Shares in Volvo are expected to get a lift in opening deals as the Swedish truck group reported better-than-expected third quarter earnings, although the group’s warning of weaker-than-expected demand in North America may take some of the shine off the numbers, dealers said.

“A solid report with stronger margins in Trucks & Central Europe,” summed

up one Stockholm-based dealer.

“But it sees the US down 40 per cent in the first half of 2007 versus our target of a

20-25 per cent fall.”

He said the raised margin target was widely expected.

Another dealer said today’s numbers were much stronger than predicted but also said the target for North American sales was lower than he had been expecting.

Third-quarter orders of heavy trucks were down 22 per cent compared to the corresponding period last year.

In North America the decrease amounted to 58 per cent. The respective figures for Europe and Asia were 6 and 26 per cent.

Volvo is to retain its goal of 10 per cent growth per year while it is raising the bar for operating margins to 7 per cent. This aim was previously set at 5-7 per cent.

“The board also thinks that a more stable income combined with lower risk means that we can permit a higher incurring of debts,” the company report stated.

Because of significant advance purchases of trucks with old engines in North America in 2006, Volvo expects much less demand in the first quarter of 2007.

Consequently the company will reduce production capacity in its North American truck factories. This may be reduced by up to 40 per cent, according to the company.