Volvo swings to first-half profit on China, Europe gains

UPDATED: 8/20/14 9:53 am ET - adds details

STOCKHOLM (Reuters) -- Volvo Cars said it swung to a profit for the first half on the back of sharply rising sales in China and growth in Europe, more than offsetting lingering weakness in the United States.

Volvo reported first-half operating earnings of 1.21 billion crowns ($176.5 million) versus a year-ago loss of 577 million crowns.

The company, which was bought by Zhejiang Geely Holding Group Co. from Ford Motor Co. in 2010, has ambitious sales goals aimed at helping fund investment needed to take on larger rivals.

Retail sales of its cars have been buoyed by double-digit growth in China, the home market of its parent, which has eclipsed the United States as Volvo's top market.

Sales in Western Europe climbed 8 percent, with strong demand in the United Kingdom and Germany. But Volvo's sales fell in Russia where economic growth is lagging as the government grapples with sanctions imposed by western countries in retaliation for the crisis in the Ukraine.

"This first half result is both solid and encouraging," Volvo CEO Hakan Samuelsson said in a statement.

After a 9-percent rise in vehicle sales for the first seven months, Samuelsson said he saw sales growing "close to 10 percent" this year compared to a previous forecast of "a good 5 percent."

"We came in at nearly 10 percent in the first half and for the full year we expect growth to continue at that level," Samuelsson told Reuters, pointing to continued expansion in China.

"We will continue to grow faster than the market [in China] if at a slightly slower pace. We expect to have a volume of a bit more than 80,000 cars in China this year," he said.

Volvo's first-half revenue rose to 64.8 billion crowns from 56.4 billion a year ago.

U.S. target

While its Chinese business is taking off, a lack of new models has seen Volvo's U.S. sales fall to roughly half of what they were a decade ago, totaling only 61,233 cars last year.

"In the U.S. our target is to keep volumes flat [this year]. We face large challenges there and they will remain," Samuelsson said. "I feel there are some initial positive indications there so I would hope that toward the end of the year we will be able to see some first positive signs also in terms of sales."

The company aims to nearly double annual global sales to 800,000 cars by 2020 while making inroads in the premium market dominated by larger rivals such as Mercedes-Benz and BMW that holds out the lure of higher prices.

Volvo is launching its new XC90 SUV, the first fully new car developed under its Chinese ownership, this month and has said it plans to price its new premium cars at the same level as those of its German competitors.

Tags: Earnings Volvo

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