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Volvo Profit Lags Forecast

Reuters
Friday, 2 Feb 2007 | 3:54 AM ET

Truck maker Volvo posted quarterly pretax earnings below consensus on Friday but raised its outlook for the European truck market and said it would make an extraordinary pay-out to shareholders.

Volvo, the world's second largest truck maker, reported pretax earnings of 5.23 billion Swedish crowns ($753.2 million) versus a year-ago 4.14 billion and the mean forecast of 5.57 billion seen in a Reuters poll of 17 analysts.

"It looks a bit weaker than I had expected," Danske Bank analyst Henrik Breum said. "But it is positive that Europe is strengthening, which confirms Scania's outlook."

The firm said it planned to pay an ordinary dividend of 25 crowns per share, up from 16.75 crowns a year ago and above the 18.31 crowns seen by analysts.

Volvo said it would also pay out an additional 25 crowns per share through a share split and redemption.

Some analysts had seen the firm making an extraordinary dividend with the mean forecast of eight analysts' estimates predicting an additional pay-out of 38 crowns per share.

The firm has come under pressure from some of its owners - notably activist fund Cevian - to shift out more of the cash generated over the past years of strong demand to shareholders.

"The main impression is that it is positive that they pay out an extraordinary dividend. It is also incredibly positive that the order intake in Europe is up as much as it is," Kaupthing analyst John Hernander said.

"I think the share will initially retreat on the earnings, but I think it will find support in the order intake and extraordinary dividend."

ORDERS RISE

Truck makers have benefited from bulging order books on both sides of the Atlantic in recent years and demand during the end of 2006, mainly in North America, was supercharged by customers pushing forward purchases ahead of new emission rules.

The new rules were implemented in the United States at the turn of the year and truck makers and analysts are forecasting a sharp drop in sales this year with the end of the buying spree.

Revenues at the firm, which sells trucks, buses, construction equipment and a broad range of engines, dipped slightly to 65.07 billion crowns from 65.29 billion a year ago, undershooting the poll's mean forecast of 66.68 billion.

Volvo also raised its forecast of the European heavy-duty truck market this year to about 300,000 units versus a previous outlook of a largely flat market versus last year's 290,000.

It did not make a specific forecast of the North American market, repeating that it expected it to decline sharply during the first half of 2007 while the last six months remained difficult to judge.

Volvo said order bookings of heavy trucks, which it sells under the Renault and Mack brands as well as its own name, rose 8% year-on-year in the fourth quarter, falling 60% in North America but climbing 58% in Europe.

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