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Abu Dhabi, UAEMonday 18 June 2018

Volvo shares hit record as earnings top forecasts on surging truck demand

The Swedish company forecast a further recovery in sales in its commercial vehicle sales in North America next year

Volvo's adjusted third-quarter operating profit rose to 7.02 billion Swedish crowns (US$861 million) from 4.85bn a year before. Luke MacGregor / Reuters
Volvo's adjusted third-quarter operating profit rose to 7.02 billion Swedish crowns (US$861 million) from 4.85bn a year before. Luke MacGregor / Reuters

Sweden's Volvo reported a bigger-than-expected rise in quarterly core earnings on Friday as stronger demand for heavy trucks more than offset costs stemming from strains on its supply chain, sending its shares to a record high.

Sweden's biggest manufacturer by sales also raised its outlook for truck markets on both sides of the North Atlantic this year and forecast a further strong recovery in sales of commercial vehicles in North America in 2018.

"These are blow-out numbers," said analyst Hampus Engellau at Handelsbanken Capital Markets, which rates the stock "buy".

Shares in Volvo rose 7 per cent by 8am (Greenwich Mean Time) leaving the stock up 56 per cent so far this year.

Volvo and rivals in the truck industry such as Germany's Daimler and Volkswagen have hit a sweet spot this year, with rising or already robust demand in all major commercial vehicles markets.

The broad upturn in demand was also in evidence in Daimler's quarterly results, also released on Friday, with a double-digit rise in deliveries and a 32 per cent jump in earnings at its trucks division.

Yet the buoyant demand has also come at a cost, with pressured supply chains leading components maker SAF-Holland to scale back its 2017 margin outlook this month, while Volvo's profitability was dented in the second quarter.

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Volvo said stretched components supply had continued to have an impact in the third quarter, but with a 13 per cent rise in truck deliveries and sharply higher earnings in its construction equipment arm, this was shrugged off.

Chief executive Martin Lundstedt, a former boss at rival Scania, said the bottlenecks that had mainly hit European truck manufacturing had eased somewhat in recent months, along with supplies of components for powertrains, or engines and axles.

"Still there is obviously a high level of pressure in the supply chain, but if you look through the quarter and after the vacation period it has been a continuous improvement, and we continue to see that," Mr Lundstedt told a news conference.

Volvo's adjusted third-quarter operating profit rose to 7.02 billion Swedish crowns (US$861 million) from 4.85bn a year before, beating a mean forecast of 6.2bn seen in a poll of analysts.

"There are really no negatives here," Mr Engellau said. "Construction Equipment is really strong and the trucks business continues to deliver in a seasonally weak quarter.

"Also order intake is extremely strong and it seems demand will accelerate even further ahead."

Volvo has begun reaping the benefits of a 10 billion crown cost-cutting drive and in August set a target to reach its highest profitability since the sale of its car making arm to Ford nearly two decades ago.

Gothenburg-based Volvo said order intake of trucks at the group, which also includes brands such as Mack, Renault and UD Trucks, grew 32 per cent in the quarter, beating the 15 per cent rise seen by analysts.