* Adjusted operating profit 7 bln crowns vs 5.3 bln forecast
* Trucks order intake up 11 percent vs forecast 7 percent
* Sees positive signs in North American truck orders
* Raises 2017 construction equipment outlook for China
(Adds detail, background, share price)
By Niklas Pollard and Johannes Hellstrom
STOCKHOLM, April 25 Swedish truck maker Volvo
reported a far bigger than expected increase in
first-quarter core earnings on Tuesday as robust demand and
years of cost cutting boosted turnover and profitability.
Gothenburg-based Volvo also raised its forecast for
construction equipment demand in China after a lengthy period of
lacklustre sales but left its outlook for truck markets on both
sides of the North Atlantic unchanged.
Shares in the maker of trucks, construction vehicles, buses
and engines leapt as much as 12 percent to their highest in
nearly a decade and were 8 percent higher at 144.7 Swedish
crowns at 1030 GMT.
"These are fantastic numbers," Handelsbanken Capital Markets
analyst Hampus Engellau said.
"This is the result of Volvo's cost-cutting efforts, but
also that they run the business much tighter these days,
focusing on profitability, productivity and sales."
Volvo, which competes with German truck makers Daimler
and Volkswagen's, is starting to reap the
benefits of a now completed cost-cutting drive designed to boost
margins and improve flexibility across the sprawling company.
Volvo said its adjusted operating profit rose to 7.03
billion Swedish crowns ($793 million) in the first quarter from
4.46 billion a year earlier, beating an average forecast of 5.32
billion in an analyst poll.
Volvo's construction equipment division, which has weathered
years of soft demand and accounts for a fifth of turnover, was
behind much of the surprise. Sales volumes picked up while it
kept a lid on operating expenses and cut material costs.
Danske Bank said it expected the consensus forecast for
operating earnings to rise 10 percent in the wake of the "pretty
much perfect" first-quarter results.
Volvo's adjusted operating margin rose to 9.1 percent from
6.2 percent a year earlier with profit increases in all its
business areas, well above the 7.0 percent seen by analysts.
The improvement in fortunes at Sweden's biggest firm by
revenue has pushed its shares up 36 percent in 2017,
outperforming a 6 percent rise for Swedish blue chips.
Volvo completed a 10 billion crown cost-cutting programme
last year, shedding thousands of mainly white collar jobs and
focusing its spending on businesses where it could be one of the
Part of the programme also involved shedding peripheral
businesses to free up resources, such as its aerospace and
external IT divisions, and it expects to sell its largely
military Governmental Sales business this year.
While his predecessor handled most of the cost cuts, Chief
Executive Martin Lundstedt, who joined Volvo in late 2015 from
the smaller, historically more profitable rival Scania, has made
These have included decentralising the unwieldy group into
one where each brand is responsible for delivering on its sales
and profit goals, in part to boost response times to swings in
the highly cyclical truck market.
"What we see now is a significant improvement in how the
operation is run, where they have created separate entities in
the company, each with a clear results responsibility, driving
the business closer to customers," Handelsbanken's Engellau
"It sounds like mumbo-jumbo, but that's what it's all about"
The company, whose brands include Mack, Renault, UD Trucks
and Volvo, said its truck order intake rose 11 percent
year-on-year in the first quarter, above the 7 percent rise
expected by analysts.
European truck sales reached their highest since the global
financial crisis last year and have held up in early 2017 while
soft demand in North America has shown signs of improvement.
"After the downwards correction in the long haulage segment
in 2016, the North American market seems to be bottoming out. We
see positive signs of increased order activity," Lundstedt said.
Robust demand is also helping Volvo's rivals, with Daimler
beating quarterly earnings forecasts this month.
Demand for construction equipment in China has also begun to
pick up. Volvo raised its growth outlook for that market to 20
percent to 30 percent this year from 5 percent to 15 percent.
($1 = 8.8688 Swedish crowns)
(Editing by Mark Potter and David Clarke)