Tougher emission rules choke Volvo profit　

         Volvo , the world's second-largest truck maker, posted the third straight drop in quarterly profit after stricter emissions rules caused US truck sales to plunge.

　　Net income fell 21 percent to 3.12 billion kronor ($484 million), or 1.54 kronor a share, from 3.92 billion kronor, or 1.94 kronor, a year earlier, Gothenburg, Sweden-based Volvo said yesterday in a statement. Profit missed the 3.33 billion-kronor median estimate of seven analysts surveyed by Bloomberg. Sales rose 13 percent to 68.4 billion kronor.

　　Chief Executive Officer Leif Johansson yesterday forecast 2007 US industry wide heavy-truck sales will fall as much as 30 percent as purchases slowed following the January 1 start of the emissions regulations. Booming eastern European and Russian markets helped offset the North American drop.

　　"They posted better sales but had higher financial costs leading to a weaker bottom line," said Anders Bruzelius, an analyst with Swedbank in Stockholm who has a "neutral" rating on the shares.
Revenue was helped by two acquisitions completed during the second quarter. Third-quarter operating profit increased 54 percent to 5 billion kronor. Earnings before interest and tax last year were hurt by a goodwill writedown of 1.71 billion kronor at Mack Trucks.

　　"During the third quarter, we experienced continued split development in our markets," Johansson said in the statement. "Demand remained strong for the Volvo Group's products and services in most of our markets in Europe, Asia and South America, while demand continued to be weak in North America."

North America

　　The North American market will decline this year to between 200,000 and 220,000 heavy trucks, Johansson said, reiterating a second-quarter forecast. US sales of trucks over 16 tons in 2006 totaled 284,000 vehicles. Volvo encountered production delays in the US as it switched to the new engines required under the stricter regulations.

　　"We now see that production is flowing increasingly more smoothly," Johansson said. Volvo faces the opposite challenge in Europe, where increasing sales have stretched the truck maker’s ability to meet demand. Johansson yesterday raised his 2007 European industry forecast to 340,000 trucks from 330,000 previously. Sales last year totaled 295,000 vehicles.

　　"In many areas of the group, production has reached peak capacity, resulting in a shortage of components, substantial overtime for our employees and increased production costs," Johansson said. "During 2008 and 2009, we will successively invest in increased production capacity."

　　Johansson, who in April announced plans to spend 935 million kronor to build a Russian plant, has said eastern European and Russian demand will remain strong as the economies expand.

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