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REFILE-UPDATE 2-Truck maker Volvo upbeat on Europe as cost cuts lift Q3 profit
October 24, 2015 / 11:24 AM / 2 years ago

REFILE-UPDATE 2-Truck maker Volvo upbeat on Europe as cost cuts lift Q3 profit

(Adds dropped word “might”, paragraph 2)

* Sees strongest European market in 2016 since fin crisis

* Sees Europe market of 275,000 trucks next year

* Q3 core profit 5.1 bln SEK vs forecast 4.6 bln

* Cuts China construction gear outlook again

By Niklas Pollard and Johannes Hellstrom

STOCKHOLM, Oct 23 (Reuters) - Truck maker Volvo forecast growth in the European heavy-duty truck market next year but slowing or flat sales in most other major markets after it reported a bigger-than-expected rise in third-quarter core profit helped by cost cuts.

Its outlook could help assuage concerns a slowing global economy and regional instability in places such as Ukraine and Greece might derail a recovery begun this year.

Volvo, a rival of truck brands from Daimler and Volkswagen, said it expected the European market to grow to 275,000 trucks in 2016 from an expected 265,000 this year, taking it to its highest level since before the 2008 financial crisis.

“I think there are quite a few factors that are actually there to support a good market next year,” Chief Financial Officer Jan Gurander told a news conference.

“It is everything from low interest rates, lower fuel prices, and you have actually a pretty old fleet as well.”

For the third quarter, adjusted operating profit rose to 5.1 billion crowns ($604 million) from 2.9 billion a year earlier, Sweden’s biggest company by sales and top private sector employer said.

That topped a mean forecast of 4.6 billion by analysts polled by Reuters.

Volvo shares, which have lost a quarter of their value over the past six months amid a slide in cyclical stocks, were up 0.4 percent at 0909 GMT, in line with the Stockholm stock market .

Investment bank Carnegie said in a research note it would likely raise its estimates for the truck maker by about 3-5 percent in light of its quarterly earnings.

Chief Executive Martin Lundstedt, in his second day on the job in the wake of the April sacking of Olof Person amid impatience over progress on a 10 billion crown cost-cutting plan, faces several challenges even as Europe improves.

Volvo’s construction equipment business, which accounts for a fifth of group sales, is suffering from a deep slump in Chinese demand while truck sales in Brazil have also tumbled.

Volvo, which sells trucks under its own as well as the Mack, Renault and UD brands, said order intake of its trucks fell 15 percent in the third quarter, worse than the 12 percent decline forecast by analysts.

Lundstedt also needs to simplify a company structure reflecting two decades of empire building that has weighed on its share price and profitability versus rivals such as VW’s Scania, which he left to join Volvo.

Volvo has sold its aero engine unit and this week signed a deal to sell its external IT business.

Lundstedt also faces a slowing Chinese construction equipment market. The company on Friday cut its outlook for the Chinese construction equipment market to a decline of between 45-55 percent this year and forecast a continued slide in 2016.

$1 = 8.4455 Swedish crowns Reporting by Niklas Pollard and Johannes Hellstrom; editing by Alistair Scrutton and Jason Neely

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