Stockholm: World number two truck maker Volvo stayed mired in losses in the fourth quarter as restructuring costs weighed, and it joined rivals in predicting only a gradual market recovery this year with Europe bringing up the rear.

In contrast to domestic peer Scania, which churned out forecast-beating profits this week, Volvo lagged expectations. But its healthy cash flow cheered the market and the share price rebounded from initial losses to trade up 3.5% by 0900 GMT, beating a DJ Stoxx autos sector that fell 1.2%. Scania traded down 0.75%.

As the truck sector emerges from its worst slump in decades, Volvo said its operating loss sank to 2.3 billion Swedish crowns ($316 million) from a loss of 999 million a year ago. Analysts in a Reuters poll had forecast 519 million.

The firm, which has slashed thousands of jobs to bring down costs in the face of the downturn, booked 1.4 billion crowns of costs for restructuring, layoffs and inventory writedowns.

Volvo, which makes heavy-duty trucks under the Renault, Mack, UD Trucks and Eicher brands, said it expected only a gradual upturn in fortunes during 2010.

“Our current assessment, which is in line with the rest of the industry, is that both the European and U.S. markets for heavy trucks will start off weak and gradually improve during the year," the company said in a statement.

Europe would grow about 10% and the North American market around 20-30%.

Mixed bag

Volvo’s report drew a mixed reaction.

“Operationally, they are just not really sorting out the profitability," Handelsbanken analyst Hampus Engellau said.

“But cash flow was twice as high as I had expected while net debt came down by 9 billion (crowns) during the quarter. That’s positive since it removes some of the talk concerning high net debt."

Volvo said cash flow was positive to the tune of 8.6 billion crowns versus a negative 1.4 billion in the previous quarter.

The global financial crisis slammed the heavy-duty truck markets with full force in late 2008, ending years of easy credit for funding purchases of new vehicles and plunging major economies across the world into a tailspin.

Demand has stabilised in recent months as government and central bank stimulus has helped economies limp out of recession, but a return to the boom market of only two years ago still looks distant.

Truck makers across Europe have resorted to sweeping cost cuts to bolster earnings in the face of the downturn and earlier this week costs cuts helped Scania churn out a smaller-than-forecast fall in pretax profit.

But Scania said it expected “a slow spring" for truck sales in Europe, the biggest market for both it and Volvo, amid excess transport capacity and lingering difficulties for customers in obtaining credit.

Order boost

Volvo, which also manufactures buses, construction equipment, engines and aerospace components, said order bookings for its trucks shot up 179% year-on-year, but the year-ago quarter was extremely weak due to a wave of cancellations.

The company said it would gradually raise production to reflect the upturn in orders, but lingering uncertainty about the economic recovery meant the acceleration would be cautious.

Among Europe’s other top truck makers, Germany’s MAN AG is due to report on Feb. 15, followed by market leader Daimler on Feb. 18.

In a further bid to conserve cash in the face of the market weakness, Volvo proposed paying no dividend for 2009. Analysts had expected the group to set a payout of 1.00 crown per share, down from 2.00 crowns a year earlier.