Source AP ©

Volvo AB's net profit dropped in 2nd quarter

Second-quarter net profit of Swedish bus and truckmaker Volvo AB dropped 14 percent because of higher costs and continued tough market conditions in North America.

Lower than-expected income from its Japanese Nissan Diesel unit, which Volvo bought earlier this year and integrated into its' accounts for the first time in the second quarter, disappointed investors, sending the share down more than 8 percent to 131 kronor (EUR14.3; US$19.78).

For the three months ended June 30, the Goteborg-based company said it earned 4 billion kronor (EUR436 million; US$603 million) down from 4.67 billion kronor in the same quarter in 2006.

Sales in the quarter, however, rose to 71.45 billion kronor (EUR7.8 billion; US$10.8 billion), compared with 68 billion kronor in the year-ago period. The rise was helped mainly by recently acquired companies, including Nissan Diesel and Ingersoll Rand's road machinery unit, it said.

Volvo said Nissan Diesel had experienced "a tough start" in the group, however, with truck deliveries falling to 10,011 units in the quarter, from 15,546 trucks in the same three months in 2006.

Volvo blamed the decline on lower sales to Nissan Motors due to a temporary gap in the product portfolio, as well as lower market demand in Japan. Nissan Diesel's introduction of new, but more expensive, environmentally friendly engines also affected sales, it said.

Pretax profit fell to 5.97 billion kronor in the second quarter, down from 6.46 billion kronor in the same three months last year, falling short of analyst expectations of 6.21 billion kronor (EUR677 million; US$936 million).

Volvo Chief Executive Leif Johansson said in a statement that for the company's trucks unit the trend is very strong in Europe but "significantly weaker" in North America. European order bookings rose 68 percent, he said.

Despite the group's challenges in both North America and with the integration of Nissan Diesel, Johansson maintained that the group's underlying profitability was strong.

The difficult quarter in North America was expected, he said, as a result of the ongoing transition to new trucks with new generation engines.

Heavy truck demand in the U.S. has mainly weakened due to a lower need for renewal after many companies invested in new trucks before new emission regulations came into effect in January.

Volvo, the world's second-largest truck maker behind DaimlerChrysler AG, has 83,000 employees. It sold its car division to U.S.-based Ford Motor Co. in 1999.

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