Volvo warns of difficult Q1 as profits slump

Truck maker Volvo warned of a rough start to 2013 after weak demand in its main markets left its factories running at half speed and pushed it into a much heavier than expected earnings fall in the fourth quarter.

Sweden's Volvo, which only weeks ago laid claim to have dethroned German Daimler as the world's biggest heavy truck maker after forming a joint venture with Chinese group Dongfeng Motor Group Co, <0489.HK> said weak orders at the end of 2012 meant the first quarter would be difficult.

"Profitability will be affected by low capacity utilization, high spend levels in research and development and costs associated with the launch of new products," Chief Executive Olof Persson said in a statement.

"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 has weighed heavily on the highly cyclical demand for commercial vehicles.

Volvo's operating earnings tumbled to 1.12 billion crowns ($176.52 million) from a year-ago 6.96 billion, well below a mean forecast for 2.19 billion seen in a Reuters poll of analysts.

Earnings were hit by weak capacity use at many of its plants as well as restructuring charges totalling 990 million crowns, compared to the 565 million hit seen by analysts.

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

However, it raised its forecast for the Brazilian market, where government incentives have boosted demand, by 10,000 trucks to about 105,000.

Order bookings of trucks at the Gothenburg-based company fell 10 percent year-on-year in the final quarter of last year versus a 13 percent fall seen by analysts. Orders were down in all regions except South America. ($1 = 6.3449 Swedish crowns)

(Reporting by Niklas Pollard and Helena Soderpalm, editing by Patrick Lannin)