Volvo, Scania ride upturn, Q1 margins top forecasts

Markets Reuters

By Niklas Pollard and Johannes Hellstrom

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STOCKHOLM (Reuters) - Volvo <VOLVb.ST> and Scania <SCVb.ST>, two of Europe's biggest truck makers, underscored the sharp rebound in the global truck market on Wednesday and reassured investors worried over cost pressures with forecast-beating margins.

The highly cyclical heavy-duty truck market has picked up strongly in recent quarters, with growth spreading out of emerging markets in Asia and Latin America to more mature markets on both sides of the North Atlantic.

Volvo, the second-biggest truck maker after Germany's Daimler AG <DAIGn.DE>, said orders for its trucks rose 40 percent and raised its 2011 market outlook for both Europe and North America to between 230,000 and 240,000 units from 220,000.

"Overall, Volvo delivers a strong set of numbers today," Sydbank analyst Morten Imsgard said.

"Especially the operating margin in the trucks division is very strong," Imsgard said. "It is a clear sign that they are very committed to keeping the low cost base they created during the crisis also in the next sales uptake."

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The results showed the upturn has gained momentum in the North American market, which was hardest hit by the global financial crisis. This is boosting Volvo, while the brunt of Scania's business is in Europe and South America.

Scania, majority-owned by Volkswagen AG <VOWG.DE> and which is in merger talks with MAN SE <MANG.DE>, also saw firm demand, though it struck a more cautious note about its key European market, where sovereign debt-related turmoil is tempering demand in some areas.

STRONG PROFITABILITY

"The first quarter was characterized by somewhat lower activity," it said. "Scania is prioritizing short and reliable delivery times, thereby limiting its order book."

The company said its truck orders rose 19 percent -- which disappointed some -- and it experienced disruptions at sub-contractors. It said nothing new about talks with MAN. VW owns a voting stake of over 70 percent in Scania and nearly 30 percent in MAN.

"Scania reported stronger profitability than expected," analysts at brokerage ABG Sundal Collier said in a note. "However, order intake of 19,457 units was 8 percent below our expectation, which mainly seems to be related to the fact that Scania limits the order book to keep low delivery times."

Volvo shares rose 2.4 percent by 0950 GMT while Scania eased 0.9 percent. Daimler and MAN, both due to present results on Friday, were up 2.4 percent and 1.3 percent respectively.

Coming out of the worst market decline in decades, truck makers face the task of catering to rapidly improving demand that has strained component suppliers, while rising prices for many raw materials have added to cost pressures.

Gothenburg-based Volvo, which makes heavy-duty trucks under the Renault, Mack, UD Trucks and Eicher brands, said its operating margin rose to 9.1 percent, almost double the year-earlier level and well above forecasts for 7.7 percent.

Scania did even better on the margin front. Its top-class production system has made it the most profitable truck maker in Europe, with an operating margin of 16.1 percent. That was a percentage point higher than forecast.

Volvo's operating earnings more than doubled to 6.5 billion crowns ($1.1 billion), 1 billion crowns more than expected. Scania's earnings were just slightly above market forecasts but showed a 57 percent increase from the year-ago quarter.

Adding to worries over parts shortages, the earthquake in Japan in March caused serious disruption to the automotive supply chain and also temporarily halted production at Volvo's Japanese UD Trucks business.

The truck maker said it expected earnings to be dented by the post-quake disruption by between 250 million and 300 million crowns, roughly the same level as in the first quarter.

(Editing by David Holmes)

($1 = 6.102 Swedish crowns)

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