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Volvo losses deepen in Q2, stands by market outlook

World number two truck maker Volvo posted a deeper than expected second-quarter loss on Tuesday and stood by its forecast that the economic downturn would see its main markets shrivel this year.

However, the drain of cash from the group slowed considerably in the quarter compared with the previous three months while Volvo said it had managed to cut inventories further as it adjusted to the plunging demand. “Sales and EBIT were clearly worse than expected. On the other hand cash flow was in line with what I had expected and I think that market expectations were for a much more negative cash flow,” Handelsbanken analyst Hampus Engellau said. Volvo skidded to an operating loss of 6.9 billion crowns ($886 million), down from a 7.2 billion profit a year ago, to come in below the 4.7 billion loss seen in a Reuters poll of analysts. Deep recessions across Volvo's main markets have dampened demand, leaving truck makers racing to cut production capacity, while the global financial crisis has left potential truck buyers starved of money to fund purchases. Volvo, which manufactures heavy-duty trucks under the Renault, Mack, Nissan Diesel and Eicher brands, as well as its own name, said order bookings in the quarter tumbled 51%, with a fall of 59%in its key European market. “In terms of market outlook, we maintain our assessment that the total European market for heavy trucks will be at least halved in 2009 compared with 2008 and that the North American market will decline by 30%-40%,” the company said. “We see that the decline in demand has started to level off and that the markets have stabilized, even though it is still difficult to predict the rest of the year.” Volvo Chief Executive Leif Johansson said in a statement that the group had another “difficult quarter” ahead in terms of earnings due to lower productions rates and extended plant closures for vacations in order to cut inventories further. (Reuters)