Swedish truck maker Volvo reports Q1 profit on lower costs, stronger sales and productivity

Swedish truck maker Volvo posts Q1 profit

STOCKHOLM — Swedish truck maker AB Volvo on Friday posted a near 1.7 billion kronor ($236 million) net profit for the first quarter, significantly beating analyst forecasts through cost reductions and improved productivity in key units.

The result compared with a loss of 4.2 billion kronor in the same three months a year ago and was the first time in more than a year it posted a profit.

The news sent shares soaring more than 10 percent to 90.35 kronor ($12.52) in early market trading on the Stockholm stock exchange.

The Goteborg-headquartered group, maker of Volvo, Mack, Renault and UD trucks, said revenues also helped its bottom line, with sales reaching 58.6 billion kronor in the period ended March 31, up from 56. 1 billion kronor for the same quarter in 2009.

Volvo CEO Leif Johansson said his company now has “every reason to be optimistic about the future,” noting all of the business units were profitable in the period.

He said cost cuts as well as improved capacity utilization were the main drivers, but noted that the services and aftermarket business “shows signs of recovery” and that Volvo has also been able to keep the prices on its products at good levels.

“Looking ahead, we will focus on utilizing the rising sales volume to increase productivity in all of the group’s operations while maintaining a strict focus on costs,” he said.

For its key truck unit, Volvo reiterated its market forecast, predicting it to grow 10 percent in Europe and 20-30 percent in North America for the full year 2010.

The European market is showing signs of improvement, with a higher order intake for new trucks and stronger demand for used trucks. The gradual improvement is expected to continue, it said.

The demand for new trucks in the North American market stayed low in the quarter, but is expected to improve in the second half of 2010. Demand for used trucks in that market has increased, it said.

“They’re surprising the market by this big leap forward in margins,” Sydbank analyst Morten Imsgard remarked. “Volvo has really pulled it off this time,” he said, adding the report was significantly better-than-expected. The positive trend is yet to be reinforced by strong performance also in the coming few quarters though, he said.

Volvo, which also makes buses, engines and construction equipment, sold its car division to U.S.-based Ford Motor Co. in 1999. Ford has now agreed to sell that brand to China’s Geely Group.