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Volvo raises North America outlook after Q1 profit rise

World number two truck maker Volvo raised its outlook for the North American market on Friday after posting an expected rise in quarterly earnings as firmer demand in its main markets offset lingering costs for a vast renewal of its model range.

Truck makers are heading into 2014 with U.S. demand picking up strongly while an anticipated hangover in Europe from a buying spree of older but cheaper trucks ahead of new emission rules is tempered by an improving underlying economy and a growing need to replace ageing fleets.

Daniel Roland | AFP/Getty Images

Volvo, vying for market leadership with Germany's Daimler, said demand was improving gradually in the mature economies in North America, Western Europe and Japan, while the emerging economies in South America and Asia eased somewhat.

While keeping its outlook for the European market unchanged at 230,000 heavy trucks, Volvo said it now expected the North American market to expand roughly 8 percent to 260,000 units this year compared to the previous guidance of 250,000.

"We are also planning for a slight increase in the production level towards summer," it said, referring to its North American operations.

Volvo, Sweden's biggest company by sales and top private sector employer, however also lowered its guidance somewhat for the Brazilian market due to a slowdown in South America's biggest economy.

The company, which makes trucks under the Renault, Mack and UD brands as well as its own name, said order intake of its trucks fell 10 percent year-on-year in the first quarter, just lagging the 7 percent decline seen by analysts.

The fall in order intake was mainly due to the short-term slump following the introduction of the European emission rules at the turn of the year and Volvo said it expected demand to pick up through the course of the year.

But 2014 is also the year in which Volvo must show evidence its sweeping efficiency measures are feeding through to the bottom line, with growing pressure from the likes of activist fund Cevian, its second biggest owner by votes, to deliver.

The company said first-quarter operating earnings excluding restructuring charges rose to 2.59 billion Swedish crowns from a year-ago 496 million, roughly on par with a mean forecast 2.52 billion in a Reuters poll of analysts.

Volvo, whose profitability has traditionally lagged rivals such as Scania, racked up an operating margin of 3.9 percent, right in line with analyst forecasts but still a far cry from the 10.7 percent report by its smaller Swedish rival.

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