Volvo Profit Misses Estimates on North American Drop

06 Feb 2008 • by Natalie Aster

Volvo AB, the world's second-largest truckmaker, reported a smaller increase in fourth-quarter profit than analysts estimated after a slump in U.S. sales offset an eastern European boom, reported The Bloomberg.

Net income rose 9.8 percent to 4.06 billion kronor ($628 million) from 3.7 billion kronor a year earlier, missing the 4.53 billion-krona median estimate of eight analysts surveyed by Bloomberg. Revenue increased 25 percent to 84.6 billion kronor, Gothenburg, Sweden-based Volvo said in a statement today.

Volvo fell as much as 5.5 percent in Stockholm trading after Chief Executive Officer Leif Johansson said North American demand remains low. The truck unit's deliveries in the region dropped 53 percent last year. Shifts in the U.S. market, where the division posted 14 percent of 2007 revenue, affect earnings at Volvo more than at European rivals MAN AG and Scania AB, which don't sell trucks in North America.

``This is a mixed quarter,'' said Anders Bruzelius, an analyst with Swedbank in Stockholm with a ``neutral'' recommendation on Volvo. ``On the one hand, you have good sales development. On the other hand, the profit was below expectations.''

Volvo shares fell as much as 4.75 kronor to 81.25 kronor and were down 2.9 percent at 83.50 kronor as of 12:30 p.m. in Stockholm. The stock has dropped 23 percent this year, valuing the truckmaker at 178 billion kronor.

The truck division, Volvo's largest unit, posted a 16 percent gain in fourth-quarter operating profit to 4.14 billion kronor as revenue increased 27 percent to 57 billion kronor. Profit was held back by 370 million kronor in warranty costs for some phased-out engines in the U.S. The unit's North American revenue fell 34 percent in the quarter to 7.9 billion kronor.

``The market there is clearly not coming back as we had expected,'' Johansson said during a Stockholm press conference today. ``We have a softening economy in the U.S. We have had to reduce production again.''

Volvo today proposed raising the 2007 ordinary dividend to 5.50 kronor a share from 5 kronor a year earlier. Volvo paid a special dividend of 5 kronor a share in 2006 as well.

Fourth-quarter operating profit, or earnings before interest and tax, increased 12 percent to 5.78 billion kronor. Operating profit as a proportion of sales fell to 6.6 percent from 7.4 percent a year earlier.

Counter to North America's slowdown, growth in eastern European economies has propelled sales gains at Volvo and competitors. The company's Europewide truck sales rose 12 percent in the quarter and Johansson today forecast the region's truck market will expand by 5 percent to 10 percent in 2008.

MAN, Europe's third largest truckmaker, said yesterday that fourth-quarter profit rose 33 percent to 331 million euros ($485 million) on a 35 percent revenue increase to 5.23 billion euros. Scania, Sweden's second-largest truckmaker, reports earnings later today.

Volvo and Scania are planning to build Russian factories, following MAN in setting up manufacturing in eastern Europe to capitalize on growth. Munich-based MAN opened a factory last October near Krakow, Poland.

Poland's government is forecasting continued growth this year following 6.5 percent expansion in 2007, the fastest pace in a decade. The Russian government expects a 10th straight year of growth in 2008 after the economy expanded 8.1 percent in 2007.