Volvo's net profit hits slow lane in Q2

Volvo AB's net profit dropped 14 per cent in the second quarter, the company said, as it was hurt by higher costs and tough market conditions in North America after new US emission regulations took effect. Its shares fell nearly 7 per cent.

For the three months ended June 30, the world's second-largest truck maker said it earned 4 billion kronor ($A685.2 million) down from 4.67 billion kronor in the same quarter in 2006.

Lower than-expected revenue and profits from its Japanese Nissan Diesel unit, which Volvo bought earlier this year and integrated into its accounts for the first time, disappointed investors.

Sales rose to 71.45 billion kronor ($A12.2 billion) from 68 billion kronor a year earlier, helped mainly by recently acquired companies including Nissan Diesel and Ingersoll Rand's road machinery unit.

Volvo said Nissan Diesel had experienced "a tough start" in the group, however, with truck deliveries falling to 10,011 units in the quarter, from 15,546 trucks in the 2006 period.

The company blamed the decline on lower market demand in Japan. Nissan Diesel's introduction of new, but more expensive, environmentally friendly engines also affected sales, it said.

Pretax profit fell to 5.97 billion kronor from 6.46 billion kronor, falling short of analyst expectations of 6.21 billion kronor ($A1.06 billion).

Chief Executive Leif Johansson said in a statement that for the company's trucks unit the trend is very strong in Europe but "significantly weaker" in North America. European order bookings rose 68 per cent, he said.

The difficult quarter in North America was expected, he said, as a result of the transition to new trucks with new generation engines.

Heavy truck demand in the US has mainly weakened due to a lower need for renewal after many companies invested in new trucks before the new emission rules came into effect in January.

Despite the challenges in North America and with the integration of Nissan Diesel, Johansson maintained that Volvo's underlying profitability was strong.

Sydbank analyst Jacob Pedersen said that despite the drawback with lower-than-expected income and revenues in Nissan Diesel, the market had reacted "rather harshly" to the report.

"If Nissan Diesel is deducted (from the result), the report would have been somewhat better-than-expected," he said.

"Overall it is pretty much in line."

Goteborg-based Volvo, has 83,000 employees. It sold its car division to US-based Ford Motor Co in 1999.

Source: AAP 2007

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