Volvo's Profit Drops; CEO Forecasts Higher Costs

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olvo AB reported an unexpected decline in fourth-quarter profit as costs rose to meet stricter pollution standards, Bloomberg reported Friday.

Volvo’s profit dropped 15% to $388 million or 96 cents a share, from $454 million or $1.10 a year earlier, Chief Executive Officer Leif Johansson said.

Johansson raised his 2006 forecast for the North American truck market to between 330,000 and 340,000 trucks from an earlier unchanged sales forecast of 320,000 vehicles.

He said new trucks meeting tighter U.S. environmental regulations in 2007 will sell for $5,000 to $10,000 more than their previous models, Bloomberg reported.

Volvo AB, the parent of U.S.-based Volvo Trucks North America and Mack Trucks, was expected to earn $459 million, Bloomberg said.

Fourth-quarter sales rose 15% to about $8.5 billion. The company reports its earnings in Swedish krona.

olvo has spent about $65 million developing engines to meet new European Union and U.S. emissions rules and components that the three brands will share, causing the first drop in profit in two years, Bloomberg said.

Johansson said the European truck market may shrink by 2.5% this year and forecast higher costs for new models there as well, Bloomberg reported.