Volvo shares tumble despite strong profits

Volvo, one of the world's leading heavy duty truck manufacturers, posted a 28 percent rise in net profit in the second quarter but a weak order book sent the company's stock skidding.

Net profit rose to 5.1 billion kronor ($850 million ) from 4.0 billion a year earlier, and operating profit climbed 17 percent to 7.18 billion kronor, the highest quarterly level ever reached by the company.

The numbers were however lower than expected, as analysts had predicted net profit of 5.2 billion and operating profit of 80.9 billion, according to financial news agency Dow Jones.

Volvo’s share price tumbled on the news, shedding 2.66 percent to 73.25 kronor on the Stockholm stock exchange in midday trading in an overall market up by 2.22 percent.

Sales for the quarter climbed 13 percent to 80.4 billion kronor, from 71.4 billion in the same period a year ago, and Volvo said sales were strong in eastern Europe, South America and Asia but continued to be weak in North America and Japan.

And chief executive Leif Johansson said the group was seeing the beginning of a slowdown in Europe.

“In Europe, the trend that we noticed in the first quarter toward increased caution among our customers and in certain markets strengthened, which was reflected in order bookings in the truck operations,” he said.

Heavy trucks orders dropped by 28 percent, weighed down by a 54 percent fall in orders in Europe.

Sales in the heavy trucks division rose by 14 percent from a year earlier, while in the construction equipment unit they climbed by 18 percent and in the bus division by five percent.

By region, sales in western Europe, its main market, rose by seven percent to 33.6 billion, by 42 percent in Asia to 13.2 billion kronor, by 35 percent in South America to five billion and by 25 percent in eastern Europe to 8.9 billion.

In North America, heavy truck sales have been weak because of a sales frenzy in 2006 ahead of new US environmental standards for trucks sold as of 2007. As a result, Volvo’s sales rose by just one percent to 12.6 billion.

Johansson maintained the group’s full-year outlook of 10 percent growth on the European heavy truck market, and said the market remained weak in North America.