(Adds shares, analyst quotes, details from conference call)
By Patrick McLoughlin
STOCKHOLM, Oct 23 (Reuters) - The world's number-two truck maker AB Volvo beat expectations with its quarterly profits on Thursday, helped by cost savings, and raised its industry-wide forecast for west European sales of heavy trucks this year.
Volvo shares climbed more than seven percent on the news.
Pre-tax profit came in at 1.3 billion Swedish crowns ($169.5 million) compared with a forecast of 940 million crowns in a Reuters poll of analysts and 584 million crowns in the same period last year.
Volvo also said it had doubled operating income in the third quarter to 1.6 billion crowns despite low demand in key markets.
Its earnings were supported by stronger margins at its core truckmaking division, which includes the Renault, Volvo and Mack brands, thanks to higher prices on a new line of trucks and the effects of cost cutting in the United States.
"We are seeing a payback of the integration of the Renault business especially in the U.S. but also in Europe," said Adam Collins, an analyst at Commerzbank in London.
By 0857 GMT, Volvo stock was up 7.8 percent, outperforming its European industrial peers .
Volvo said deliveries of its heavy trucks in Western Europe fell 12 percent year-on-year in the third quarter while its deliveries in North America dropped 25 percent.
"Our strong product programmes, increased efficiency and positive synergy effects are the main reasons for the improved profitability," Volvo Chief Executive Leif Johansson said in a statement.
"We do see signs of a more stable market trend."
It raised its forecast for total demand for heavy trucks in Europe, which accounts for about 60 percent of Volvo's sales, this year to 214,000 units from an earlier forecast of 200,000, but left its North Americam forecast unchanged at 170,000 units.
Volvo now has a more bullish view on the European market than some of its peers who forecast a flat market for next year.
RECOVERY
Truck demand tends to reflect the health of the wider economy, and manufacturers like Volvo have suffered in the last two years from flagging sales on both sides of the Atlantic.
But over the past few months Volvo and its rivals have said they are seeing signs of reviving demand, especially in the United States.
"It's still early days. We do not want to send a message that the recession is over, but we are the bottom and in North America we are seeing light on the horizon," Johansson told a conference call.
Earlier this week, credit ratings agency Standard & Poor's said the truck sector was on the brink of an upturn.
"The global truck industry is gearing up for a recovery in 2004 after years of declining demand during which manufacturers were hit by a cyclical downturn, price and competitive pressures and tougher legal requirements on emissions," said S&P.
The industry should be well placed to benefit when the upturn comes due to sector-wide efforts to cut costs.
DaimlerChrysler , the world's biggest truckmaker, also published stronger-than-expected earnings at its commercial vehicles unit earlier this week, citing cost savings.
Most analysts expect more improvement at Volvo next year.
"We think the story is the trucks and construction equipment businesses are geared into economic recovery and we are especially hopeful for an improvement in U.S. volumes," said Collins.
The construction equipment business saw operating income rise to 210 million crowns in the third quarter from 120 million a year ago, and operating income at the Financial Services unit jumped to 242 million crowns from 126 million.
(Additional reporting by Kim McLaughlin and Madeline Chambers in Frankfurt)