MERCEDES-BENZ GROUP AG 
STOCKHOLM (Reuters) - Volvo (>> Volvo AB) forecast stronger demand in Europe but the reverse in the United States and Brazil, as cost cuts helped the Swedish truckmaker post a lower than expected dip in first quarter core profit.
Heavy-duty trucks, where Volvo is competing with Germany's Daimler (>> Daimler AG) and Volkswagen (>> Volkswagen AG), are riding strong demand across Europe and battling downturns across the Atlantic.
These simultaneous pressures are a test for a leaner Volvo and a new leadership team that cut its teeth at rival Scania, which has long boasted some of the best margins in the business.
Shares in Volvo rose 5 percent by 0811 GMT on Friday, outpacing a 0.4 percent slide in the Stockholm blue chip index <.OMXS30>, after Sweden's biggest listed company by revenues said adjusted operating earnings fell to 4.46 billion crowns (382 million pounds) from a year-ago 4.60 billion, topping a forecast of 4.14 billion in Reuters poll of analysts.
"This is a very good quarter. It is also a quarter where there were worries among investors due to Volvo's history of large costs when altering the production rate," Handelsbanken Capital Markets analyst Hampus Engellau said.
Volvo, which sells trucks under the Mack, Renault and UD brands as well as its own name, doubled its outlook for market growth in Europe but forecast steeper falls in North America and a Brazilian market hit by recession and political turmoil.
"The European market is performing strongly," said Volvo CEO Martin Lundstedt, one of several former Scania executives that include his CFO and, come October, his key technology chief.
"Demand in North America is slowing from high levels. In the first quarter, the organisation did a good job in adjusting capacity for lower volumes."
The outlook chimed with that of Daimler, whose Mercedes and Freightliner trucks go head-to-head with Volvo, which said it saw growth of about 5 percent for the medium and heavy truck segment in Europe and an around 10 percent contraction in North America.
While the need to renew ageing fleets is boosting demand in Europe, a sluggish industrial sector, soft freight data and de-stocking have hit U.S. truck sales and led Volvo to announce a 30 percent cut in its North American production in February.
TRADING UP IN EUROPE
The average age of Europe's truck fleet rose during years of anaemic demand as a result of the eurozone crisis. With improving freight activity and cheaper financing due to record-low interest rates, operators have now been trading up.
By contrast, the North American heavy-duty or class 8 market is coming off a couple of peak years that spawned a glut of modern trucks both on the roads and in inventory. This coincided with a plunge in oil and metals related business which put a damper on industrial activity and haulage volumes.
"The main reason is the on-road segment slowing down as well as continuous stock adjustments at dealers," Lundstedt said of the U.S. slowdown. "We predict that the stock adjustments will be over during the summer and return to normal levels."
The Scania "clique" at Volvo, joined this month by another old Scania hand as Volvo Cars boss Hakan Samuelsson was elected to Volvo's board, now face the task of replicating some of their past success on a far larger scale.
They are expected to renew efforts to boost efficiency across Volvo's sprawling production system and possibly spin-off of its construction gear arm, though a deal may only be likely once hard-hit equipment demand in China stabilises.
(Additional reporting by Sven Nordenstam; Editing by Alistair Scrutton and Alexander Smith)
By Niklas Pollard
