Volvo’s profit beats expectations as cost cuts pay off

Swedish truckmaker Volvo posted forecast-beating quarterly earnings on Tuesday as years of cost cuts and strong deliveries in Europe helped fortify it against slumping demand for commercial vehicles in the United States.

Volvo and rivals Daimler and Volkswagen , with its array of truck brands, have been buoyed by rising demand across Europe over the past year while contending with a drop in orders in the United States and Brazil.

The company, the first of Europe’s major truckmakers to report second-quarter results, scaled back its outlook for North America, saying it expected industry-wide sales of 240,000 trucks versus its April forecast for 250,000.

But while the market may face more challenges, earnings held firm.

Adjusted operating earnings at Gothenburg-based Volvo rose to 6.13 billion Swedish crowns ($647 million) from a year-ago 5.98 billion, beating a mean forecast for 5.64 billion in Reuters poll of analysts.

"In the second quarter we were able to continue the improvement of our underlying profitability despite declining sales, thanks to positive cost development," chief executive Martin Lundstedt, a former Scania boss appointed last year, said in a statement. Volvo sales fell 7 per cent in the quarter.

Volvo, which sells trucks under brands such as Mack, Renault and UD brands as well as its own name, said order intake of its trucks fell 8 per cent in the second quarter versus the 1 per cent decline seen by analysts.

Lundstedt has come on board as Volvo begins reaping the dividends of a 10 billion crown cost cutting drive intended to make the sprawling group less prone to plunges in profitability as highly cyclical truck markets periodically slump.

The company, which besides weak US demand for trucks is also facing a downturn for construction equipment in China, posted an adjusted operating margin of 7.8 per cent versus a year-ago 7.1 per cent and the 7.0 per cent seen by analysts.

Reuters