Volvo Profit Falls on Plunge in U.S. Truck Sales (Update4)

Volvo AB, the world's second-largest truckmaker, said profit fell for the first time in five quarters as stricter U.S. emission standards led to a plunge in sales.

First-quarter net income fell 5.8 percent to 3.75 billion kronor ($550 million), or 1.85 kronor a share, from 3.98 billion kronor, or 1.96 kronor, a year earlier, the Gothenburg, Sweden- based company said today. Profit beat the 3.37 billion-kronor median estimate of seven analysts surveyed by Bloomberg News.

The U.S. market for heavy trucks over 16 tons declined 22 percent in the first quarter as customers reduced purchases following the Jan. 1 introduction of stricter emissions standards, raising prices. Volvo helped make up for the U.S. decline with gains in eastern European sales.

``This is definitely a positive surprise,'' said Henrik Breum, an analyst with Danske Bank in Copenhagen who has a ``buy'' rating on the shares. ``They have been able to partially offset the expected drop in North American sales, which is a clear indication of their ability to raise the underlying margins in their truck business.''

The shares rose as much as 5.5 kronor, or 4.5 percent, to 127.24 kronor and were up 3.7 percent at 10:26 a.m. in Stockholm. The stock has gained 34 percent this year.

Revenue fell 3 percent to 61 billion kronor. Operating profit, or earnings before interest and tax, fell 2 percent to 5.33 billion kronor. The operating margin, or operating profit as a percentage of sales, was unchanged at 8.7 percent.

North America

Volvo's first-quarter North American truck sales declined 49 percent to 9,024 vehicles, while orders, an indicator of future sales, plummeted 80 percent to 5,273 vehicles. Volvo, which also makes Renault and Mack brand trucks, said today that ``the need for renewal is low'' in the U.S.

Volvo has helped offset the U.S. decline with increased sales in the booming eastern European and Russian markets. First-quarter truck division revenue in Europe rose 11 percent to 25 billion kronor.

Chief Executive Leif Johansson, who last month announced plans to spend 935 million kronor to build a Russian plant, earlier this year forecast ``continued strong demand'' in the region in the years to come.

Johansson today raised his forecast for European heavy- truck market growth this year to 330,000 vehicles from 300,000 trucks previously. Truckmakers sold a record 294,997 vehicles in Europe last year.

European Market

``The greater European market may even be slightly bigger than,'' Johansson said in at a Stockholm press conference. ``We see a new, greater Europe that has a higher demand than we had previously expected, so good news from greater Europe.''

Volvo boosted European capacity 5 percent in the first quarter and will further increase production in the second quarter to meet the rising demand, the truckmaker said.

Bellevue, Washington-based Paccar Inc., the world's third- largest truckmaker, said last month first-quarter profit gained 7 percent to $365.6 million as a 25 percent gain in European sales, thanks to its DAF truck unit, more than offset the U.S. decline.

Munich-based MAN AG and Soedertaelje, Sweden-based Scania AB, neither of which sells trucks in the U.S., have reported first-quarter profit gains as eastern European and Russian sales boom.

Volvo, flush with cash from the booming European sales, has been spending money on acquisitions. The truckmaker announced in February a friendly bid to buy Nissan Diesel Motor Co. Volvo said a month later that it would spend 7.4 billion kronor to raise its Nissan Diesel stake to 96 percent from 19 percent.

Nissan Diesel

Nissan Diesel today said that fiscal 2006 net income fell 31 percent to 20.1 billion yen ($174 million), the second straight annual decline, as sales dropped 3.4 percent.

``We are right in the process of integrating Nissan Diesel into the group,'' Johansson said.

Volvo's construction equipment division earlier this year agreed to buy Ingersoll Rand Co.'s road building-equipment unit for $1.3 billion in cash to become the world's third-largest maker of construction equipment and compete with Caterpillar Inc. and Komatsu Ltd., the world's two-largest makers of heavy equipment.

The construction-equipment division, Volvo's second-largest unit after trucks, increased first-quarter revenue 13 percent to 11 billion kronor. The division's operating profit climbed 8 percent to 946 million kronor.

Volvo, which also makes marine engines and buses, restated first-quarter figures because of a change in financial accounting procedures and a stock split earlier this year.