Volvo Cars quarterly operating profit beats expectations despite tariff hit

By Marie Mannes

STOCKHOLM (Reuters) -Volvo Cars reported a sharp decline in second-quarter operating profit on Thursday that nonetheless exceeded analyst expectations, sending shares up, though the company continues to face headwinds from tariffs and softening demand.

Sweden-based Volvo Cars is the first European carmaker to release results in what analysts expect to be a challenging earnings season, as subdued demand for electric vehicles and intensifying competition from Chinese manufacturers coincide with trade tensions.

But much of the fall had already been priced in to analyst and investor estimates as the prospect of tariffs and lower sales was largely expected.

Shares were up nearly 8% at 0712 GMT.

"Demand remains soft and volatile, impacted by weakening consumer confidence and the introduction of additional tariffs, which continue to pose challenges for the automotive sector," the carmaker said in its earnings report.

In addition to a 27.5% tariff imposed on European-made Volvo cars entering the U.S., it has also been hit by a 25% tariff on auto parts as well as on steel and aluminium.

Despite the gloomy environment, second-quarter numbers came in better than feared, analysts at Bernstein said in a research note.

"Given how weak stock positioning is here it should be enough for a positive market reaction," they said.

The company, owned by China's Geely Holding, posted an adjusted operating profit of 2.9 billion Swedish crowns ($297.89 million), down from 8.0 billion crowns a year earlier.

Its gross margin, a key metric for assessing the tariff impact, dropped to 13.5% from 18.2% in the first quarter, though, adjusted for one-offs, it stood at 17.7%.

Volvo Cars announced a $1.2 billion impairment charge related to model launch delays and tariffs on Monday, resulting in an operating loss of 10 billion crowns, compared to a profit of 8 billion crowns in the same quarter last year.

Earlier in the year, former CEO Hakan Samuelsson was brought back for two years to help revive a record-low share price. Samuelsson quickly launched a cost-cutting programme, pulled earnings guidance, slashed 3,000 jobs, and slowed down investments. 

($1 = 9.7352 Swedish crowns)

(Reporting by Marie Mannes; Editing by Stine Jacobsen and Rachna Uppal)