By Patrick McLoughlin and Hans Nagl
STOCKHOLM/FRANKFURT, July 23 (Reuters) - Strong earnings reports from European truck makers Volvo and Scania on Wednesday were overshadowed by worries about weak demand in Europe, despite a brighter outlook for north America, as talk of sector consolidation reemerged.
The world's second-biggest truck maker, AB Volvo and Scania , the world's most profitable, beat market expectations with second-quarter earnings but their outlooks were at odds due to their exposures to different markets.
"It's a kind of tale of two cities. Volvo is a recovery story which reflects the overlying business activity in North America...whereas Scania is a better indicator of Europe where you have had a lagging economy for some time," said a Swedish fundmanger.
The trucks industry, which tends to reflect wider economic conditions, has suffered in the last two years from slumping demand on both sides of the Atlantic with most players hard hit.
Volvo was relatively upbeat about north America, its second most important market, saying the region felt more stable than previously and customers were now seeking higher-priced trucks.
Scania, more reliant on European markets, was more cautious.
"Growth of the economies in Scania's main markets in western Europe continued to deteriorate and our order bookings declined," said Scania Chief Executive Leif Ostling.
Volvo shares jumped to a 14-month high in early trading but by 1029 GMT were trading down 0.5 percent at 193.50 crowns. Scania, meanwhile dropped 3.39 percent to 213.50 crowns.
Both truckmakers were also stung by unfavourable currency effects which showed up in sales which dropped about 10 percent from a year ago to 44.6 billion crowns for Volvo. Scania had negative currency effects of 1.250 billion crowns on its revenues of 25.091 billion crowns.
CONSOLIDATION LOOMING?
Chronically tough conditions and exorbitant development costs have led to consolidation and joint ventures in the industry which experts predict will continue with players including Germany's MAN and Scania playing a central role.
MAN and Scania agreed on a gearbox and axles joint venture in April to keep costs down and Volvo has to sell its 45 percent stake in Scania early next year for regulatory reasons. That may spark a further round of consolidation, say experts.
Possible buyers could be MAN or German carmaker Volkswagen which already holds a stake in the Swedish company.
MAN declined to comment on Wednesday on a report in a German magazine that it may buy the 45 percent stake in Scania.
MAN management has always been against a break-up of the truck and engineering group but some of its strategic shareholders, which include German insurer Allianz, may be keener on the idea as they would probably get a higher price if they were to sell their stake.
Sources told Reuters earlier this month that VW was interested in MAN's trucks unit and had held talks with the company but that no firm negotiations were under way.
HIGHER PROFITS
Volvo posted pre-tax profits of 2.04 billion crowns ($250 million) for the second quarter, up from 1.31 billion in the same period last year and compared with a mean forecast of 1.76 billion in a Reuters poll.
It pointed to cost cutting and new products at its core trucks division which includes Renault, Volvo and Mack, as well as reviving demand in the United States.
Volvo said it still saw heavy truck sales in North America slipping slightly this year while European demand would fall five to ten percent.
"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.
Scania posted second-quarter pretax profits of 1.3 billion crowns, up from 816 million crowns a year ago and surpassing expectations. (Additional reporting by Niklas Pollard and Jennie Dehlen in Stockholm and Madeline Chambers in Frankfurt)