(Bloomberg) -- Volvo AB boosted its forecast for truck markets in the U.S. and Europe this year as low fuel prices and interest rates push demand, a development that's expected to put more strain on an already tight supply chain. The shares rose the most in three months.
The world's second-biggest truckmaker raised its expectation for industrywide North American deliveries by 7 percent and the European market by some 3 percent as freight transport expands. New sales will continue to stretch Volvo's ability to fill orders, which already raised manufacturing costs last year, the Gothenburg, Sweden-company said Wednesday in a statement.
Volvo has been able to meet “most” customers' demands on order timings for now, Chief Executive Officer Martin Lundstedt said on a call with analysts. Supply bottlenecks will persist through at least the second quarter, he said.
Buoyant truck markets and recovering construction equipment demand are bringing Volvo closer to a goal of lifting operating profit consistently above 10 percent of revenue. Efforts to improve profitability, including the elimination of thousands of jobs, were championed by shareholder Cevian Capital AB. The Swedish activist investment firm had also pushed for a further streamlining or breakup of the business, before agreeing in December to sell its its stake to Zhejiang Geely Holding Group Co.. The Chinese company is also the owner of the truckmaker's former Volvo Cars business.
Volvo rose as much as 4.5 percent, the steepest intraday gain since Oct. 20, and was trading up 3.3 percent at 165.2 kronor as of 10:38 a.m. in Stockholm. The shares have jumped 48 percent in the past 12 months, valuing the company at 352 billion kronor ($45 billion).
Highlights from Volvo's fourth-quarter report:
- Operating margin widened to 8% vs 6.9%
- Truck orders jumped 29%
- Adjusted EBIT rose 30% to 7.33 billion kronor vs 7.29 billion-krona analyst estimate
Volvo also increased its forecast in most regions for total demand of machinery used in mining and road works, after fourth-quarter orders surged 48 percent. Demand in China could rise as much as 20 percent this year, Volvo said, as an increase in commodity prices encourages mining customers to expand.
--With assistance from Niclas Rolander
To contact the reporter on this story: Elisabeth Behrmann in Munich at ebehrmann1@bloomberg.net.
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tom Lavell, Andrew Noël
©2018 Bloomberg L.P.
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