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January 31, 2018 12:15 PM, EST

Volvo Sees Rising Global Truck Demand Straining Supply Chain

Justin Ide/Bloomberg News

Volvo AB boosted its forecast for truck markets in the U.S. and Europe this year as low fuel prices and interest rates push demand, a development that’s expected to put more strain on an already tight supply chain. The shares rose the most in three months.

The world’s second-biggest truckmaker raised its expectation for industrywide North American deliveries by 7% and the European market by some 3% as freight transport expands. New sales will continue to stretch Volvo’s ability to fill orders, which already raised manufacturing costs last year, the Gothenburg, Sweden-company said Jan. 31 in a statement.

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Volvo has been able to meet “most” customers’ demands on order timings for now, CEO Martin Lundstedt said on a call with analysts. Supply bottlenecks will persist through at least the second quarter, he said.

Buoyant truck markets and recovering construction equipment demand are bringing Volvo closer to a goal of lifting operating profit consistently above 10% of revenue. Efforts to improve profitability, including the elimination of thousands of jobs, were championed by shareholder Cevian Capital AB. The Swedish activist investment firm had also pushed for a further streamlining or breakup of the business, before agreeing in December to sell its stake to Zhejiang Geely Holding Group Co.. The Chinese company is also the owner of the truckmaker’s former Volvo Cars business.

Volvo rose as much as 4.5%, the steepest intraday gain since Oct. 20, and was trading up 3.3% at 165.2 kronor as of 10:38 a.m. in Stockholm. The shares have jumped 48% in the past 12 months, valuing the company at 352 billion kronor ($45 billion).

Highlights from Volvo’s fourth-quarter report:

• Operating margin widened to 8% vs 6.9%.

• Truck orders jumped 29%.

• Adjusted EBIT rose 30% to 7.33 billion kronor vs 7.29 billion-krona analyst estimate.

Volvo also increased its forecast in most regions for total demand of machinery used in mining and road works, after fourth-quarter orders surged 48%. Demand in China could rise as much as 20% this year, Volvo said, as an increase in commodity prices encourages mining customers to expand.

With assistance by Niclas Rolander