Truck Maker Volvo Posts 28% Profit Gain

Volvo AB's second-quarter net profit rose 28% as the Sweden-based truck maker's sales growth in Eastern Europe, South America and Asia offset a slowdown in Western Europe and the U.S.

Volvo warns truck demand is weakening in Europe, its biggest market. Volvo said net profit rose to 5.13 billion Swedish kronor ($855.7 million), compared with four billion kronor a year earlier. Revenue increased 13% to 80.43 billion kronor from 71.45 billion kronor.

However, Volvo, the world's second-largest truck maker by sales after Daimler AG, warned that truck demand is weakening in Europe, its biggest market, even though demand in Eastern Europe remains strong.

"In Europe, the trend that we noticed in the first quarter, toward increased caution among our customers and in certain markets, strengthened -- which was reflected in order bookings in the truck operations," Chief Executive Leif Johansson said. "However, demand for long-distance transport remains high, but there is a weakening in construction transport and construction equipment."

European truck sales rose 7% to 30.05 billion kronor, but orders fell 54% from a year earlier to 21,948 trucks -- hurt by increased uncertainty about the economy, high fuel prices and a slowdown in the construction industry.

In North America, truck sales rose 14% to 6.94 billion kronor, while in Asia they gained 54% to 8.17 billion kronor. Demand for heavy trucks in North America is also slowing because of the weak economy, soaring fuel prices and the weakening housing-construction sector, Volvo said.

Last month, Caterpillar Inc. of Peoria, Ill., said it will stop supplying heavy-duty truck engines in North America by 2010, instead entering a partnership with Navistar International Corp. to make engines for trucks used in areas such as road construction.

In a conference call with reporters, Mr. Johansson said Caterpillar's exit from this market improves the picture for Volvo trucks in the U.S. "From our point of view, I don't think we can say it's anything but good news," he said. "It means that the marketplace looks a little more positive than before." Construction equipment, the company's second-largest unit, saw an 18% rise in revenue to 16.73 billion kronor. Demand for heavy, compact and road-machinery equipment softened in Europe and North America but was strong in other markets.

Rising raw-materials costs have hurt the construction-equipment unit more than other divisions, Mr. Johansson said. "We need to offset that with price increases," he added.

Volvo's stock price fell 2.3% to 73.50 kronor Wednesday. Daimler is scheduled to release quarterly earnings Thursday. Scania AB is due to report results Friday.

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