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Volvo earnings surge as demand for construction equipment rises

Munich - Volvo first-quarter earnings surged 58% after the truck maker reduced spending and sold more construction equipment.

Orders for commercial vehicles and machinery for construction sites and mining also jumped, Gothenburg, Sweden-based Volvo said on Tuesday in a statement, boding well for future revenue. New truck orders rose 11%, while sales contracts for construction equipment increased 34%.

Adjusted operating profit climbed to 7.03bn kronor ($792m), beating the 5.46bn-krona average of estimates compiled by Bloomberg.

"This was an extremely strong quarter, with the benefits of the restructuring over the past couple of years coming through," said Jose Asumendi, a London-based analyst with JPMorgan Chase. 

"Those orders are going to translate into sales in the coming quarters."

Volvo last year completed a reorganisation to cut in annual spending by 10bn kronor from 2012 levels. The manufacturer also moved early to reduce truck output in North America after an industry wide contraction following a period of high demand. While order intake was strong, Volvo recorded a 5% drop in deliveries during the quarter, and left its forecasts for key markets unchanged.

European truck orders have been buoyed by improved economic prospects, including German business confidence at a six-year high. At the same time, demand in the US has flagged, though this may turn around as President Donald Trump has a goal of lifting growth in the world’s largest economy to 3%.

Market weakness in North America looks to be "bottoming out," chief executive officer Martin Lundstedt said in the statement.

Volvo’s return on sales during the quarter widened to 9.1% from 6.2% a year earlier. That compares with 8.4% profitability at Daimler’s trucks unit in the period.

Daimler, the world’s biggest maker of commercial vehicles, outlined plans early this month to scale back the workforce at its German plants to cut €400m in fixed costs.

Orders for commercial vehicles and machinery for construction sites and mining also jumped, Gothenburg, Sweden-based Volvo said Tuesday in a statement, boding well for future revenue. New truck orders rose 11%, while sales contracts for construction equipment increased 34%.

Adjusted operating profit climbed to 7.03bn kronor ($792m), beating the 5.46bn-krona average of estimates compiled by Bloomberg.

"This was an extremely strong quarter, with the benefits of the restructuring over the past couple of years coming through," said Jose Asumendi, a London-based analyst with JPMorgan Chase & Co.

"Those orders are going to translate into sales in the coming quarters."

Volvo last year completed a reorganisation to cut in annual spending by 10bn kronor from 2012 levels. The manufacturer also moved early to reduce truck output in North America after an industry-wide contraction following a period of high demand. While order intake was strong, Volvo recorded a 5% drop in deliveries during the quarter, and left its forecasts for key markets unchanged.

European truck orders have been buoyed by improved economic prospects, including German business confidence at a six-year high. At the same time, demand in the US has flagged, though this may turn around as President Donald Trump has a goal of lifting growth in the world’s largest economy to 3%.

Market weakness in North America looks to be "bottoming out," chief executive officer Martin Lundstedt said in the statement.

Volvo’s return on sales during the quarter widened to 9.1% from 6.2% a year earlier. That compares with 8.4% profitability at Daimler’s trucks unit in the period.

Daimler, the world’s biggest maker of commercial vehicles, outlined plans early this month to scale back the workforce at its German plants to cut €400m in fixed costs.

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