Stockholm: World No.2 truck maker Volvo stood by its forecast of a gradual recovery in its main markets this year after it swung to a much bigger-than-expected first-quarter profit, buoyed by cost cuts.
The highly cyclical heavy-duty truck market has stabilised in recent quarters amid a broader economic recovery, with demand showing signs of coming off the unprecedented lows hit a year ago, especially in emerging markets in Asia and Latin America
Truck markets on both sides of the Atlantic suffered their steepest plunge in decades last year as the global financial crisis ended years of easy credit to fund vehicle purchases and sent economies across the world into tailspin.
“The report is really good, maybe even amazingly good. They beat expectations by a wide margin and the company’s margin is almost back at pre-recession levels,” Handelsbanken analyst Hampus Engellau said.
“I would be surprised if the share doesn’t head higher on this, even if there has been a bit of a whisper number effect.”
Fortified by the sweeping cost cuts and a timid rise in demand, Volvo posted operating earnings of 2.8 billion crowns ($389 million), beating the mean average of 335 million in a Reuters poll and rising from a loss of 4.5 billion the previous year.
“The improved profitability is an effect of substantially reduced costs, increased production and a good performance in South America,” the company said in a statement.
While markets in Europe and North America remain weak, surging demand in Latin America also helped Volvo rival Scania, for whom Brazil is the biggest market, roll out unexpectedly strong earnings last week.
Last week also saw market leader Daimler, set to unveil its first-quarter report on Tuesday, hike its 2010 guidance for its trucks business, saying it now expected earnings as much as three times higher than previously forecast.
Volvo, which makes heavy-duty trucks under the Renault, Mack, UD Trucks and Eicher brands, repeated its forecast for the truck market to grow about 10% in Europe this year and about 20 to 30% in North America.
“We anticipate that the demand for new trucks in North America will improve in the second half of the year and that the gradual improvement we have seen in Europe will continue,” Volvo said, adding it had been able to maintain prices.
Volvo, which also makes buses, construction equipment, engines and aerospace components, said order bookings for its trucks rose 118% year-on-year in the first quarter.
The company, which has slashed thousands of jobs to bring down costs in the face of the downturn, said the seasonally weak first-quarter cash flow was negative to the tune of 2.7 billion crowns versus minus 15.7 billion in the previous quarter.