Volvo Q4 loss widens, cautious on market upturn

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World number two truck maker Volvo skidded to a wider than expected fourth-quarter loss on Friday, hit by restructuring costs and writedowns, but said its main markets would return to growth this year.

The company reported an operating loss of 2.3 billion Swedish crowns (USD 316 million) versus a loss of 999 million a year ago and a loss of 519 million seen in a Reuters poll of analysts.

Volvo said its results, which contrasted with the forecast-beating earnings of its smaller Swedish rival Scania this week, were hit by 1.4 billion crowns of costs for restructuring and lay-offs as well as writedowns of inventory.

"We had some writedowns and restructuring costs in our estimates, but not quite as much as this," said an analyst who asked not to be identified.

"The cost cuts have not been carried out yet -- their costs are too high compared to the demand -- and that is very negative. They have been at this one-and-a-half years now."

The global financial crisis slammed the heavy-duty truck markets with full force in late 2008, ending years of easy credit for funding purchases of new vehicles and plunging major economies across the world into a tailspin.

The signs are that demand has stabilised in recent months as government and central bank stimulus has helped economies limp out of recession, but a solid recovery in the cyclical truck market still looks distant.

Volvo, which makes heavy-duty trucks under the Renault, Mack, UD Trucks and Eicher brands, said it expected the European market to grow about 10% this year while the North American market expanded around 20-30%.

"Our current assessment, which is in line with the rest of the industry, is that both the European and U.S. markets for heavy trucks will start off weak and gradually improve during the year," the company said in a statement.

ORDERS FIRM

Truck makers across Europe have resorted to sweeping cost cuts to bolster earnings in the face of the downturn and earlier this week costs cuts helped Scania churn out a smaller-than-forecast fall in pretax profit.

But Scania said it expected "a slow spring" for truck sales in Europe, the biggest market for both it and Volvo, amid excess transport capacity and lingering difficulties for customers in obtaining credit.

Volvo, which also manufactures buses, construction equipment, engines and aerospace components, said order bookings of its trucks shot up 179% year-on-year, but the year-ago quarter was extremely weak due to a wave of order cancellations.

The company said it would gradually raise production rates to reflect the upturn in orders, but lingering uncertainty about the economic recovery meant the acceleration would be cautious.

"In Europe, we see recovery, with increased order bookings for trucks and construction equipment, although this is starting from very low levels," Volvo said.

"In North America, demand currently remains at a low level, with a continued weakness in the construction market."

Among Europe's other top truck makers, Germany's MAN AG is due to issue its fourth-quarter report on February 15, followed by market leader Daimler on February 18.

Volvo, which has slashed thousands of jobs to bring down costs in the face of the downturn, said its cash flow was positive to the tune of 8.6 billion crowns versus a negative 1.4 billion in the previous quarter.

In a further bid to conserve cash in the face of the market weakness, Volvo proposed paying no dividend for 2009. Analysts had expected the group to set a payout of 1.00 crown per share, down from 2.00 crowns a year earlier. ($1=7.280 Swedish Crown)