July 19, 2018 / 8:43 AM / 4 months ago

RPT-UPDATE 2-Truckmaker Volvo's profit tops forecast despite supply chain bottlenecks

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* Q2 oper profit jumps to 12.3 bln SEK vs 10.8 bln SEK consensus

* Operating margin crosses 10 pct target for first time

* Volvo hikes some FY trucks outlooks

* Sees ongoing cost pressures in trucks supply chain in near term

* Shares rise as much as 3.4 pct

STOCKHOLM, July 19 (Reuters) - AB Volvo beat second-quarter profit estimates on Thursday and managed to lift profit margins despite bottlenecks in the supply chain as demand for trucks remained strong.

Volvo, like European rivals Daimler and Volkswagen, is experiencing rapid growth as construction fleet buyers step up purchases, but parts of the supply chain are struggling to cope, causing raw material, transport and labour costs to climb.

The company, which has cut 10 billion crowns of costs, still managed to lift its operating margin which surpassed its 10 percent target for the first time.

Although Volvo forecast that ongoing strong demand meant that it would continue to face supply chain constraints in the near-term, particularly in the U.S., CEO Martin Lundstedt said there was “still potential” for further cost savings.

“In this type of strong market, both in Europe and North America, it would be strange if you didn’t have these problems in the supply chain. But they are handling it pretty well,” Handelsbanken Capital Markets analyst Hampus Engellau said, picking out the operating margin as a highlight of the results.

Volvo’s shares rose as much as 3.4 percent before paring gains to trade up 1 percent at 149.60 Swedish crowns at 0747 GMT.

Cost pressures are likely to increase for some vehicle parts, autos machinery and raw materials due to the escalating trade war which has caused Beijing and Washington to slap tariffs on goods imported from each other.

Lundstedt told Reuters last month that although Volvo had regional supply chains in its main markets, it was still dependant on global flows when it comes to certain products and could therefore could be impacted by a trade war.

Volvo’s report on Thursday carried no comments about the trade escalations. New tariffs came into play in July.

Over the second quarter ended June, Volvo saw its operating profit jump to 12.3 billion crowns ($1.4 billion) from 8.4 billion crowns a year ago, coming in well ahead of the 10.8 billion crowns forecast in a Reuters poll of analysts.

Profit was, as expected by analysts, partly boosted by a one-off capital gain of 818 million crowns from the sale of a Chinese subsidiary holding shares in Inner Mongolia North Hauler Joint Stock Co.

The company’s order intake of trucks, which sells under brands Volvo, Mack, Renault and UD Trucks, grew to 60,656 units from 52,265 units a year ago, missing expectations of 63,201 units.

It maintained its full-year forecast for truck markets in North America and Europe but also hiked the outlook for medium and heavy duty trucks in India and heavy-duty trucks in China.

China’s Geely Holding bought a 14.9 percent voting stake in the truckmaker in June and also bought a stake of almost 10 percent in Daimler, AB Volvo’s main rival. ($1 = 8.8614 Swedish crowns)

Reporting by Esha Vaish and Johannes Hellstrom in Stockholm, Editing by Sherry Jacob-Phillips and Elaine Hardcastle

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