Volvo warns of rough start with production running at half speed

The Swedish truck maker Volvo has warned of a rough start to 2013 after weak demand in its main markets left factories running at half speed and pushed it into a heavier than expected quarterly earnings fall.

Volvo, which only weeks ago laid claim to have dethroned Germany's Daimler as the world's biggest manufacturer of heavy trucks on the back of a joint venture in China, said that weak orders at the end of 2012 meant the first quarter would be difficult.

"Profitability will be affected by low capacity utilisation, high spend levels in research and development and costs associated with the launch of new products," the Volvo chief executive Olof Persson said.

"However, we expect market conditions to gradually improve during the course of 2013 when economic growth across the world gains momentum."

Heavy-duty truck makers have run into tougher times in recent quarters as the deep economic downturn in Europe and sluggish activity in North America have weighed heavily on the highly cyclical demand for commercial vehicles.

Volvo's fourth-quarter operating earnings tumbled to 1.12 billion Swedish crowns from the previous year's 6.96 billion, well below a mean forecast for 2.19 billion seen in a Reuters poll of analysts.

Earnings were hit by weak use of capacity at many of its plants and restructuring charges totalling 990 million crowns, against the 565 million crown hit expected by analysts, one of whom said that the market might still take some solace from the results.

Volvo, which makes trucks under the Renault, Mack, UD Trucks and Eicher brands as well as its own name, has been cutting shifts and inventories because of weaker demand but stood by a forecast for flat 2013 markets in Europe and North America.

* Reuters