Volvo shares rise as Q1, Europe outlook pleases

By Niklas Pollard and Victoria Klesty

STOCKHOLM (Reuters) - World number two truck maker Volvo AB posted first-quarter pretax earnings above market expectations on Friday and was more upbeat on its key European market, sending its shares sharply higher.

Volvo reported pretax profit of 6.14 billion Swedish crowns ($1 billion) versus a year-earlier 5.41 billion and a mean forecast of 5.71 billion in a Reuters poll of 17 analysts.

"I think this report is more than okay," Danske analyst Henrik Breum said. "They've made a very good rebound on the trucks side. Even if they have a low order intake in Europe and don't see a rebound in the North American market, it looks like costs are under firm control."

Volvo shares opened 5.7 percent higher, outperforming the Stockholm bourse's blue chip index which was up 2.5 percent on the day.

"It's a good report and the market should like it," Nordea analyst Johan Trocme said.

"The only possible point of concern is that order bookings of trucks in Europe are weak. But that should be seen in the light of the order book being so large, the lead times long, and they haven't even opened the order books for '09 deliveries in all European national markets yet."

Demand in Volvo's main markets over the past year could hardly have been more disparate. While North America has been in the throes of a deep industry-wide slump, truck plants across Europe have been straining to keep up with bulging order books.

Fortified by the strong demand in Europe, as well as last year's purchase of Japan's Nissan Diesel, sales at the group rose to 76.7 billion crowns from a year ago 61.0 billion, though this fell short of the 77.15 billion seen by analysts.

In a better gauge of current demand, Volvo's truck order intake fell 3 percent in January through March as bookings rose 8 percent from a low level in North America and fell 40 percent in Europe, the group's biggest market.

But the group, which sells trucks under the Renault, Nissan Diesel and Mack brands as well as its own name, raised its outlook for European market growth this year to 10 percent from 5-10 percent to reflect its extensive order backlog.

It stood by its forecast for a largely flat North American truck market in 2008 over 2007 and Johansson said weak market conditions there were likely to remain.

EUROPE SURPRISES

Analysts had voiced concern before the report that recent financial turmoil had made customers wary of placing orders, not least since long lead times, due to lack of industry capacity, meant trucks bought now would not be delivered until 2009.

With order books filled to the brim, a 40 percent decline in European order flow was no cause for concern, Volvo Chief Executive Leif Johansson said in a statement.

"Overall, we have strong order backlogs in Europe and despite a reduced order intake our truck operations continue to secure orders at a pace that is surprisingly high," he said.

This was true in light of long delivery times in Europe now at 10-12 months against a normal 3-4 months and the uncertainty caused by the weak North American business climate and turmoil in financial markets, he added.

"We clearly in Europe see a slower growth (pace) than we have seen before, (but) we are comparing against quarters in 2007 which were almost hysterical in terms of dramatic shortage, and everyone placing orders," Johansson said in comments on the group's website.

"What is good to see is that the order book remains very high quality, very strong, and we actually have order bookings in most of our business areas for greater Europe (through) the whole (of) 2008."

Eyeing developments across the Atlantic, Johansson said the weak North American market there was putting its operations there under pressure and that "hard work" would be needed in many areas to achieve "satisfactory" profitability.

(Additional reporting Johannes Hellstrom; Editing by Quentin Bryar)