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Volvo Pretax Lags, Upbeat on European Demand

Sweden's Volvo posted a smaller-than-expected rise in quarterly pretax earnings on Wednesday, but was upbeat on demand in Europe while remaining confident about a recovery in the troubled U.S. market.

The world's second biggest heavy truck maker reported a pretax profit of 4.57 billion crowns ($706 million) versus 3.14 billion a year ago and a mean forecast of 4.84 billion in a Reuters poll of 15 analysts.

"This is a bit of a mixed report in my eyes," Danske Equities analyst Henrik Breum said, pointing to firm development for the group's truck operations and weakness in the smaller construction equipment and bus segments.

"Normally, it (the Volvo stock) would get hit for coming in below earnings expectations, but I don't think the reaction will be negative due to the positive signs from the trucks business."

"I think people feared the worst, so I believe this could be somewhat of a relief for the market."

In Europe, demand has stayed strong this year while across the Atlantic U.S. heavy-duty truck sales have plunged as a buying spree ahead of new emission rules for truck engines came to a jarring halt at the end of 2006.

Industry analysts had voiced concerns the already anemic U.S. truck market could weaken further due to the recent credit crunch and financial market turbulence.

But Volvo stood by its forecast for a decline in the North American truck market to 200,000 to 220,000 units this year from 350,000 units in 2006 and said the production problems which plagued the firm there in the second quarter had eased.

It also said its customer finance arm had become increasingly careful in monitoring its portfolios in the wake of recent market turmoil, but added that delinquencies, inventories and repossessions still remained at low levels.

Boom in Europe

Volvo, which sells heavy-duty trucks under the Renault, Nissan and Mack brands as well as its own name, raised its forecast for the truck market in Europe this year to 340,000 units from a previous forecast of 330,000 units.

"Demand is currently very strong in Europe. In many areas of the group, production has reached peak capacity, resulting in a shortage of components, substantial overtime for our employees and increased production costs," the firm said.

Volvo will invest in lifting production capacity, mainly in Europe, during the next two years, the firm said, adding it expected its suppliers to make sure they also boosted their ability to deliver to the group.

Revenues at Volvo, which besides trucks sells buses, construction equipment and a broad range of engines, rose to 68.37 billion crowns from 60.48 billion a year earlier to come in above the 65.45 billion predicted by analysts.

The firm said order bookings of trucks rose 89 percent year-on-year in July through September, partly due to the acquisition of Nissan earlier this year, as orders rose 7 percent in North America and shot up 90 percent in Europe, the firm's single biggest market.

"Moving toward 2008, we are preparing ourselves for continued strong demand in Europe, with a truck market that is projected to increase by 5 to 10 percent," the firm said.

"In North America, we expect that the demand for trucks will pick up gradually during 2008."

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