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By Patrick McLoughlin
STOCKHOLM, July 23 (Reuters) - The world's second-biggest truck maker, AB Volvo , beat expectations with its second-quarter earnings on Wednesday and said market conditions were starting to stabilise, sending the company's shares higher.
The Swedish company said pre-tax profits rose to 2.04 billion crowns ($250 million) from 1.31 billion in the same period last year. That compared with a mean forecast of 1.76 billion in a Reuters poll.
Volvo pointed to cost cutting and new products at its core trucks division which includes Renault, Volvo and Mack, combined with reviving demand in the United States, its second-biggest market.
The company's shares rose as much as three percent to a 14-month high in early trading. By 0801 GMT, the stock was up 1.5 percent at 197.50 Swedish crowns, outperforming the industrial sector which was flat.
"The synergies are kicking into place as well as newly introduced products. These two factors mean Volvo will perform well despite a difficult market," said analyst Hans Westerberg, of Swedbank.
The trucks industry, which tends to reflect wider economic conditions, has suffered in the last two years from flagging demand on both sides of the Atlantic and most players, including the world's biggest truckmaker DaimlerChrysler , have also been hit.
"After great uncertainty in the first quarter concerning the market trend, there are now signs of stabilisation," said Chief Executive Leif Johansson in a statement, adding that neither the war in Iraq nor the outbreak of SARS had any further negative impact on Volvo's primary markets.
BRIGHTER OUTLOOK?
Volvo said it was too soon to change its previous full-year guidance and said it saw heavy truck sales in North America, slipping to about 170,000 units in 2003.
The group also stuck to an earlier forecast that demand in Europe, its biggest market, would fall five to ten percent this year to about 200,000 units.
"However, we also expect that the total market is more likely to differ from the forecast on the positive side rather than the negative," Johansson said.
"There is a more positive tone to the company's outlook statements, although the numbers haven't changed," said Michael Raab, auto analyst at Sal Oppenheim in Frankfurt who rates the stock "neutral".
Volvo's statement echoed comments earlier this month from U.S. heavy equipment maker Caterpillar Inc which posted a strong rise in second-quarter earnings and said there were some signs that the long-awaited replacement of heavy machinery may be starting.
However, Volvo's bus unit continued to weigh on the group's results, with a second-quarter operating loss of 89 million euros down from a 51 million euro profit a year ago due to weak demand in all markets and stiff price competiton.
Group sales dropped about 10 percent from a year ago to 44.6 billion crowns compared with an expected 47 billion, hit by the weakening U.S. dollar. (Additional reporting by Madeline Chambers in Frankfurt)