Volvo reported fourth-quarter earnings that were higher than a year ago but lagged behind most analysts’’ forecasts amid slower truck and construction equipment sales in some markets.

The Swedish group left unchanged its 2012 forecast of slightly lower demand for trucks in Brazil and Europe, where it said order intake was “slowing moderately”. It expected China’s market for construction equipment to remain flat, with demand weak in the first half of the year but stronger in the second.

Volvo reported fourth-quarter operating income of SKr6.96bn($1bn), 26 per cent higher than a year ago, but 3.5 per cent lower than consensus expectations of analysts polled by Reuters of SKr7.20bn. The group’s operating margin was 8 per cent for the quarter, up from 7.5 per cent a year ago.

Volvo proposed a dividend of SKr6bn, or SKr3 a share, for 2011. Olof Persson, chief executive, who described the group’s financial results and margins as “record”, said it would reinvest another SKr12 in its operations.

Volvo is Europe’s second-largest producer of trucks after Germany’s Daimler, and also makes them under the Mack, UD, Eicher and Renault brands in addition to buses, marine engines and construction equipment.

The group warned in October it would have to cut production and some temporary staff in response to slower orders for trucks in Europe and South America. This followed a similar warning by rival Swedish group Scania, owned by Germany’s Volkswagen, which said it would cut its production by 10 to 15 per cent from November.

Demand for trucks and construction equipment are seen as a gauge of broader economic health.

Mr Persson said on Friday that the group had taken signs of slowing demand “very seriously”, pulling back component production last year and reducing output in its final assembly this quarter.

“We have now an output and a production capacity which is in line with demand,” Mr Persson told analysts and media in a conference call on Friday.

The company was hurt badly in 2008, when collapsing demand for trucks left it stuck with many unsold vehicles in inventory. The company went on to cut almost 22,000 jobs, more than a fifth of its workforce.

On Friday, the group upheld its previous forecast that Europe’s total truck market would fall 9 per cent this year, and Brazil’s by 6 per cent. “If I look at what we see today, the order intake in Europe has gone down, but is stabilising on a lower level,” Mr Persson said.

Volvo expects industry orders of trucks to rise 22 per cent in North America as fleets replace their ageing vehicles.

Earlier this week, Scania reported a 27 per cent drop in order bookings for its trucks and buses in the fourth quarter, including in southern Europe, Middle East, Asia, and Latin America as it reported higher fourth-quarter net income of SKr9.42bn.

Fiat Industrial, which owns the Iveco trucks brand, earlier this week reported fourth-quarter earnings of €395m that were behind most analysts’ expectations, in part because of weaker performance at its Case New Holland farm and construction equipment business.

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