STOCKHOLM (Reuters) - Sweden's AB Volvo (ST:VOLVb) reported a bigger-than-expected rise in quarterly core earnings on Friday, as a broad upturn in demand for heavy trucks more than offset costs stemming from a strained supply chain.
Sweden's biggest manufacturer by sales also raised its outlook for truck markets on both sides of the North Atlantic this year and forecast a further strong recovery in industry-wide sales of commercial vehicles in North America in 2018.
Volvo and rivals in the truck industry such as Germany's Daimler (DE:DAIGn) and Volkswagen (DE:VOWG_p) have hit a sweet spot this year with rising or already robust demand in all major commercial vehicles markets.
Yet the buoyant demand has also come at a cost, with strained supply chains leading components maker SAF-Holland to scale back its 2017 margin outlook this month, while Volvo's profitability was dented already in the second quarter.
Volvo said stretched components supply had continued to have its impact in the third quarter, but with a 13 percent rise in truck deliveries and sharply higher earnings in its construction equipment arm, this was easily shrugged off.
Adjusted third-quarter operating profit at Volvo rose to 7.02 billion Swedish crowns ($861 million) from 4.85 billion crowns in the year-ago period and beat a mean forecast of 6.20 billion crowns seen in a poll of analysts.
Volvo has begun reaping the benefits of a completed 10 billion crown cost-cutting drive and set a target in August to reach its highest profitability since the sale of its car making arm to Ford (N:F) nearly two decades ago, spurring further gains in a stock that has gained 45 percent this year.
Gothenburg-based Volvo said order intake of trucks at the group, which also includes brands such as Mack, Renault (PA:RENA) and UD Trucks in its stable, grew 32 percent in the quarter, beating the 15 percent rise seen by analysts.
($1 = 8.1513 Swedish crowns)