(Adds CEO comment on U.S. market, updates shares)
By Patrick McLoughlin and Niklas Pollard
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 view on demand in Europe, sending its shares sharply higher.
Pre-tax profit came in at 1.3 billion Swedish crowns ($169.5 million), way over a forecast of 940 million crowns in a Reuters poll and up from 584 million a year ago.
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 truck-making 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 1014 GMT, Volvo stock was up 7.3 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," said Volvo Chief Executive Leif Johansson.
He also gave a relatively upbeat market outlook.
"We do not want to send a message that the recession is over, but we are at the bottom and in North America we are seeing light on the horizon," Johansson told a conference call.
It raised its forecast for total demand for heavy trucks in Europe, which accounts for about 60 percent of Volvo's sales, to 214,000 units for this year from an earlier forecast of 200,000, which is roughly flat compared with last year.
Johansson predicted a stable European market in 2004.
"The company's statement that the European truck market is now expected to come in flat nourishes hopes that 2004 will be a better year for trucks overall," said Michael Raab of Sal Oppenheim in Frankfurt.
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 in recent months Volvo and its rivals have said they are seeing signs of reviving demand, especially in north America.
"When it comes to trucks, I think we can say that the (north American) market will go up. It's hard to say by how much but it will be in the region of 5-10 percent (next year)," Johansson told Reuters.
In the earnings report, Volvo left its forecast for overall North American sales for this year unchanged at 170,000 units.
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 Commerzbank's Collins.
Operating income at the construction equipment unit jumped to 210 million crowns in the third quarter from 120 million a year ago, and at Financial Services it almost doubled to 242 million crowns.
(Additional reporting by Kim McLaughlin and Madeline Chambers in Frankfurt)