April 24, 2019 / 5:45 AM / 4 months ago

Truckmaker Volvo profit tops forecast as supply chain squeeze eases

STOCKHOLM (Reuters) - Truckmaker AB Volvo beat first-quarter profit forecasts on Wednesday as it sold more higher priced vehicles and margins benefited from an easing of supply chain bottlenecks for components such as engines and gear boxes.

FILE PHOTO: The logo of Volvo is seen on the front grill of a Volvo truck in a customer showroom at the company's headquarters in Gothenburg, in this September 23, 2008 photo. REUTERS/Bob Strong/File Photo

The Swedish company, which sells trucks under brands Volvo, Mack, Renault and UD Trucks, was also upbeat about demand trends in North America, sending its shares as much as 4.6 percent higher, although it kept its overall 2019 forecasts unchanged.

Volvo has enjoyed buoyant trade in recent years as truck buyers renewed fleets starved of investment during the last downturn, but its forecast for lower demand in China and Europe this year had fuelled concerns the cycle may have peaked.

“We’re leaving our forecast unchanged but if anything we see somewhat of an upward pressure when it comes to North America,” Chief Executive Martin Lundstedt told analysts.

“The message here is that North American customers are taking their deliveries ... and we have an order book that is full up to end of 2019 and, in a very restricted (way), open for 2020.”

The demand has left Volvo battling supply chain bottlenecks for four quarters, but margins improved during the first quarter of 2019, helped by better pricing and mix of goods sold, improved efficiencies and easing supply problems.

Lundstedt told Reuters that Volvo had more or less worked through supply challenges for powertrain components, where it relies on global sourcing, and was now focused on solving remaining issues with suppliers specific for North America.

“We’re working through that ... and we saw improvement by the end of the quarter, so let’s hope that will continue,” he said.

Adjusted operating margin at the maker of trucks, construction equipment, buses and engines grew to 11.8 percent from 9.3 percent a year earlier, beating the mean forecast of 10.3 percent in a poll of analysts.

Adjusted operating income jumped 53 percent to 12.70 billion crowns (£1.05 billion), beating the 10.19 billion seen by analysts.

At least two brokerages said the full-year consensus profit estimate was likely to rise by a mid-single digit percentage.

“While pricing is likely to fade when the market cools off, we still believe (the) stock remains attractively valued against what we see is a likely margin surprise,” Citi analyst Klas Bergelind said in a note.

At 1000 GMT, Volvo shares were up 3.6 percent at 153 crowns, after touching a 6-month high of 154.55 crowns.

Trucks order intake fell for a second straight quarter to 45,884 units, missing the 57,227 units forecast, but Volvo pointed to low intake in North America where its books had been close to full for 2019 before the quarter began.

Lundstedt said Volvo was proceeding cautiously in opening up for bookings for next year to prevent inventory shortages.

Reporting by Esha Vaish and Johannes Hellstrom; Editing by Niklas Pollard and Mark Potter

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